Allocating Selling and Administrative Expenses using Activity-Based CostingShrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price$1,110per unitCost of goods sold682 Gross profit$428per unit In addition, the company incurs selling and administrative expenses of $414,030. 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: ActivityBudgeted Activity Cost Activity BaseCustomer service$76,860Number of service requestsSales order processing25,920Number of sales ordersAdvertising support311,250Number of ads placedTotal activity cost$414,030 Activity-base usage and unit volume information for the three customers is as follows: The WarehouseKosmo Co.Supply UniverseTotalNumber of service requests6234025427Number of sales orders3006401401,080Number of ads placed2518044249Unit volume8108108102,430 Required:1. Determine the activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar.Activity RateCustomer Service$ per serv. req.Sales Order Processing$ per sls. orderAdvertising Support$ per ad2. Determine the activity costs allocated to the three customers, using the activity rates in (1).Activity CostsThe 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 income from operations associated with each customer. Enter all amounts as positive numbers. Shrute Inc.Customer Profitability ReportFor the Year Ended December 31 The WarehouseKosmo Co.Supply UniverseRevenues$$$Cost of goods sold Gross profit$$$Selling and administrative activities: Customer service cost$$$Sales order processing cost Advertising support cost Total selling and administrative$$$Income from operations$$$
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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
$1,110
per unit
Cost of goods sold
682
Gross profit
$428
per unit
In addition, the company incurs selling and administrative expenses of $414,030. 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
$76,860
Number of service requests
Sales order processing
25,920
Number of sales orders
Advertising support
311,250
Number of ads placed
Total activity cost
$414,030
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
62
340
25
427
Number of sales orders
300
640
140
1,080
Number of ads placed
25
180
44
249
Unit volume
810
810
810
2,430
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 income from operations associated with each customer. Enter all amounts as positive numbers.
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 cost
$
$
$
Sales order
Advertising support cost
Total selling and administrative
$
$
$
Income from operations
$
$
$
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