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eBook Show Me How Calculator Print Item Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute...

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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., 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 $39,000 Number of service requests
Sales order processing 24,500 Number of sales orders
Advertising support 163,200 Number of ads placed
Total activity cost $226,700

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 50 10 190 250
Number of sales orders 270 120 590 980
Number of ads placed 20 10 90 120
Unit volume 630 630 630 1,890

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 bid
Advertising Support $ per customer design change

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, 2016, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer. Enter all amounts as positive numbers, except for a negative income from operations.

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 $
Income (loss) from operations $ $ $

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ekkarill92 answered 1 year ago
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