Question

In: Accounting

Allocating Selling and Administrative Expenses using Activity-Based Costing Arctic Air Inc. manufactures cooling units for commercial...

Allocating Selling and Administrative Expenses using Activity-Based Costing

Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows:

Price $60,000 per unit
Cost of goods sold (28,000)
Gross profit $32,000 per unit

In addition, the company incurs selling and administrative expenses of $226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are:

Activity Budgeted Activity Cost Activity Base
Customer service $31,500 Number of service requests
Project bidding 74,000 Number of bids
Engineering support 120,750 Number of customer design changes
Total activity cost $226,250

Activity-base usage and unit volume information for the three customers is as follows:

Gough Industries Breen Inc. The Martin Group Total
Number of service requests 36 28 116 180
Number of bids 50 40 95 185
Number of customer design changes 18 35 108 161
Unit volume 30 16 4 50

Required:

1. Determine the activity rates for each of the three nonmanufacturing activity pools. Round to the nearest whole dollar.

Activity Rate
Customer Service $ per serv. req.
Project Bidding $ per bid
Engineering Support $ per design changes

2. Determine the activity costs allocated to the three customers, using the activity rates in (1).

Activity Costs
Gough Industries $
Breen Inc. $
The Martin Group $

3. Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and operating income associated with each customer.

Arctic Air Inc.
Customer Profitability Report
For the Year Ended December 31
Gough Industries Breen Inc. The Martin Group
Revenues $ $ $
Cost of goods sold
Gross profit $ $ $
Selling and administrative activities:
Customer service $ $ $
Project bidding
Engineering support
Total selling and administrative activities $ $ $
Operating income (loss) $ $ $

Solutions

Expert Solution

Activity Rate = Overhead Costs/Total Driver
Overhead Activity Rate
Customer Service = 31500/180 175 per service req
Project Bidding = 74000/185 400 per bid
Engineering Support 120750/161 750 per design change
Activity cost allocated = Driver consumed*Activity Rate
Activity Costs
Gough Industries = 36*175 + 50*400 + 18*750                    39,800
Breen Inc.                    47,150
The Martin Group                 139,300

Arctic Air Inc.
Customer Profitability Report
For the Year Ended December 31
Gough Industries Breen Inc. The Martin Group
Revenues              1,800,000        960,000                   240,000
Cost of goods sold                 840,000        448,000                   112,000
Gross profit                 960,000        512,000                   128,000
Selling and administrative activities:
Customer service                      6,300             4,900                     20,300
Project bidding                    20,000           16,000                     38,000
Engineering support                    13,500           26,250                     81,000
Total selling and administrative activities                    39,800           47,150                   139,300
Operating income (loss)                 920,200        464,850                   (11,300)

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price $730 per unit Cost of goods sold 440 Gross profit $290 per unit In addition, the company incurs selling and administrative expenses of $232,160. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price$690 per unit Cost of goods sold(410) Gross profit$280 per unit In addition, the company incurs selling and administrative expenses of $263,410. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related to its three...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price $650 per unit Cost of goods sold 390 Gross profit $260 per unit In addition, the company incurs selling and administrative expenses of $276,980. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price $720 per unit Cost of goods sold (430) Gross profit $290 per unit In addition, the company incurs selling and administrative expenses of $226,570. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold...
Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price $700 per unit Cost of goods sold 420 Gross profit $280 per unit In addition, the company incurs selling and administrative expenses of $270,510. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related...
Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold...
Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: 1 Price per unit $60,000.00 2 Cost of goods sold 28,000.00 3 Gross profit per unit $32,000.00 In addition, the company incurs selling and administrative expenses of $226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer...
eBook Show Me How Calculator Print Item Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute...
eBook Show Me How Calculator Print Item Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price $750 per unit Cost of goods sold 450 Gross profit $300 per unit In addition, the company incurs selling and administrative expenses of $226,700. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co.,...
Activity-Based Costing: Selling and Administrative Expenses Jungle Junior Company manufactures and sells outdoor play equipment. Jungle...
Activity-Based Costing: Selling and Administrative Expenses Jungle Junior Company manufactures and sells outdoor play equipment. Jungle Junior uses activity-based costing to determine the cost of the sales order processing and the customer return activity. The sales order processing activity has an activity rate of $75 per sales order, and the customer return activity has an activity rate of $15 per return. Jungle Junior sold 10,000 swing sets, which consisted of 2,800 orders and 300 returns. a. Determine the total sales...
Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses Naper Inc. manufactures power...
Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses Naper Inc. manufactures power equipment. Naper has two primary products—generators and air compressors. The following report was prepared by the controller for Naper's senior marketing management for the year ended December 31: Generators Air Compressors Total Revenue $4,200,000 $3,000,000 $7,200,000 Cost of goods sold 2,940,000 2,100,000 5,040,000 Gross profit $1,260,000 $900,000 $2,160,000 Selling and administrative expenses 610,000 Income from operations $1,550,000 The marketing management team was concerned that...
Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses Naper Inc. manufactures power...
Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses Naper Inc. manufactures power equipment. Naper has two primary products—generators and air compressors. The following report was prepared by the controller for Naper's senior marketing management for the year ended December 31: Generators Air Compressors Total Revenue $1,796,440 $2,752,720 $4,549,160 Cost of goods sold 1,347,330 2,064,540 3,411,870 Gross profit $449,110 $688,180 $1,137,290 Selling and administrative expenses 246,690 Income from operations $890,600 The marketing management team was concerned that...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT