PR 4-5A Allocating selling and administrative expenses usingactivity-based costingObj. 5Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goodssold for each unit are as follows:$ 60,000 per unit(28,000)$ 32,000 per unitPriceCost of goods soldGross profitIn addition, the company incurs selling and administrative expenses of $226,250. The companywishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and TheMartin Group. These expenses are related to three major nonmanufacturing activities: customerservice, project bidding, and engineering support. The engineering support is in the form of engi-neering changes that are placed by the customer to change the design of a product. The budgetedactivity costs and activity bases associated with these activities are:ActivityBudgeted Activity CostActivity Base$ 31,50074,000120,750Customer serviceNumber of service requestsProject biddingEngineering supportNumber of bidsNumber of customer design changesTotal costs$226,250Activity-base usage and unit volume information for the three customers is as follows:The MartinGough IndustriesBreen Inc.GroupTotalNumber of service requests3628116180Number of bids504095185Number of customer design changes1835108161Unit volume3016450Instructions1. Determine the activity rates for each of the three nonmanufacturing activity pools.2. Determine the activity costs allocated to the three customers, using the activity rates in (1).3. Construct customer profitability reports for the three customers, dated for the year endedDecember 31, using the activity costs in (2). The reports should disclose the gross profit andoperating income associated with each customer.Provide recommendations to management, based on the profitability reports in (3).

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activity-based costing Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods old for each unit are as follows: $ 60,000 per unit (28,000) $ 32,000 per unit Price Cost of goods sold Gross profit n addition, the company incurs selling and administrative expenses of $226,250. The company vishes 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 ervice, project bidding, and engineering support. The engineering support is in the form of engi- neering 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

activity-based costing Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods old for each unit are as follows: $ 60,000 per unit (28,000) $ 32,000 per unit Price Cost of goods sold Gross profit n addition, the company incurs selling and administrative expenses of $226,250. The company vishes 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 ervice, project bidding, and engineering support. The engineering support is in the form of engi- neering 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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