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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 to its three major nonmanufacturing activities: customer service, sales order processing, and advertising support. The advertising support is in the form of advertisements that are placed by Shrute Inc. to support the retailer's sale of Shrute copiers to consumers. The budgeted activity costs and activity bases associated with these activities are:

Activity Budgeted Activity Cost Activity Base
Customer service $48,000 Number of service requests
Sales order processing 30,070 Number of sales orders
Advertising support 148,500 Number of ads placed
Total activity cost $226,570

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

The Warehouse Kosmo Co. Supply Universe Total
Number of service requests 70 10 240 320
Number of sales orders 270 120 580 970
Number of ads placed 20 10 80 110
Unit volume 670 670 670 2,010

Required:

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

Activity Rate
Customer Service $ per serv. req.
Sales Order Processing $ per sls. order
Advertising Support $ per ad

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

Activity Costs
The Warehouse $
Kosmo Co. $
Supply Universe $

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.

Shrute Inc.
Customer Profitability Report
For the Year Ended December 31
The Warehouse Kosmo Co. Supply Universe
Revenues $ $ $
Cost of goods sold
Gross profit $ $ $
Selling and administrative activities:
Customer service $ $ $
Sales order processing
Advertising support
Total selling and administrative activities $
Operating income $ $ $

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ekkarill92 answered 1 year ago
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