After studying the costs incurred over the past two years for one of its products, skeins of knitting yarn, Jackson has selected four categories of selling costs and chosen cost drivers for each of these costs. The selling costs actually incurred during the past year and the cost drivers are as follows: Cost Category Amount Cost Driver Sales commissions.. $ 675,000 Boxes of yarn sold to retail stores Catalogs. 295,400 Catalogs distributed Cost of catalog sales. 105,000 Skeins sold through catalog Credit and collection. 60,000 Number of retail orders Total selling costs. $1,135,400 The knitting yarn is sold to retail outlets in boxes, each containing 12 skeins of yarn. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales. The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog orders. Jackson believes that the selling costs vary significantly with the size of the order. Order sizes are divided into three categories as follows: Order Size Catalog Sales Retall Sales Small 1-10 skeins 1-10 boxes Medium 11-20 skeins 11-20 boxes Large Over 20 skeins Over 20 boxes An analysis of the previous year's records produced the following statistics. Order Size Small Medlum Large Total Retail sales in boxes (12 skeins per box) 2,000 45,000 178,000 225,000 Catalog sales in skeins 79,000 52,000 44,000 175,000 Number of retail orders. 485 2,415 3,100 6,000 Catalogs distributed 254,300 211,300 125,200 590,800

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Redwood Company sells craft kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Redwood, while others are purchased for resale. For the products it manufactures,
the company currently bases its selling prices on a product-costing system that accounts for direct material, direct labor, and the associated overhead costs. In addition to these product costs, Redwood incurs substantial selling costs, and Roger Jackson, controller, has suggested that these selling costs should be included in the product pricing structure.

Required:
1. Prepare a schedule showing Redwood Company’s total selling cost for each order size and the perskein selling cost within each order size.
2. Explain how the analysis of the selling costs for skeins of knitting yarn is likely to impact future pricing and product decisions at Redwood Company.

After studying the costs incurred over the past two years for one of its products, skeins of knitting
yarn, Jackson has selected four categories of selling costs and chosen cost drivers for each of these costs.
The selling costs actually incurred during the past year and the cost drivers are as follows:
Cost Category
Amount
Cost Driver
Sales commissions..
$ 675,000
Boxes of yarn sold to retail stores
Catalogs.
295,400
Catalogs distributed
Cost of catalog sales.
105,000
Skeins sold through catalog
Credit and collection.
60,000
Number of retail orders
Total selling costs.
$1,135,400
The knitting yarn is sold to retail outlets in boxes, each containing 12 skeins of yarn. The sale of
partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales.
The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog
orders. Jackson believes that the selling costs vary significantly with the size of the order. Order sizes are
divided into three categories as follows:
Order Size
Catalog Sales
Retall Sales
Small
1-10 skeins
1-10 boxes
Medium
11-20 skeins
11-20 boxes
Large
Over 20 skeins Over 20 boxes
An analysis of the previous year's records produced the following statistics.
Order Size
Small
Medlum
Large
Total
Retail sales in boxes (12 skeins per box)
2,000
45,000
178,000
225,000
Catalog sales in skeins
79,000
52,000
44,000
175,000
Number of retail orders.
485
2,415
3,100
6,000
Catalogs distributed
254,300
211,300
125,200
590,800

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