Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: Category Price Cost of goods sold Gross profit In addition, the company incurs selling and administrative expenses of $226,250. The company wishes 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 service, project bidding, and engineering support. The engineering support is in the form of engineering 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 Per Unit Dollar Amount $60,000 28,000 32,000 Customer service Project bidding Engineering support Total costs Budgeted Activity Cost Activity Number of service requests Number of bids Number of customer design changes Unit volume Activity-base usage and unit volume information for the three customers is as follows: Activity Base $51,500 Number of service requests 64,000 Number of bids 110,500 Number of customer design changes 226,000 Gough Industries Breen Inc. 27 40 35 16 35 50 18 30 The Martin Group 115 95 108 4 Total 177 185 161 50
Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: Category Price Cost of goods sold Gross profit In addition, the company incurs selling and administrative expenses of $226,250. The company wishes 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 service, project bidding, and engineering support. The engineering support is in the form of engineering 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 Per Unit Dollar Amount $60,000 28,000 32,000 Customer service Project bidding Engineering support Total costs Budgeted Activity Cost Activity Number of service requests Number of bids Number of customer design changes Unit volume Activity-base usage and unit volume information for the three customers is as follows: Activity Base $51,500 Number of service requests 64,000 Number of bids 110,500 Number of customer design changes 226,000 Gough Industries Breen Inc. 27 40 35 16 35 50 18 30 The Martin Group 115 95 108 4 Total 177 185 161 50
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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F3
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Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for
each unit are as follows:
Category
Price
Cost of goods sold
Gross profit
F4
Customer service
Project bidding
Engineering support
Total costs
In addition, the company incurs selling and administrative expenses of $226,250. The company wishes
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 service, project
bidding, and engineering support. The engineering support is in the form of engineering 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:
S⁰5
Activity
Number of service requests
Number of bids
Number of customer design changes
Unit volume
%
Activity
3:0
F5
T
Activity-base usage and unit volume information for the three customers is as follows:
6
Per Unit Dollar Amount
$60,000
28,000
32,000
F6
Y
&
7
F7
Budgeted Activity Cost
O
الالي
U
35
50
18
30
Page
F8
Gough Industries Breen Inc. The Martin Group
115
95
108
4
*
8
$51,500
64,000
110,500
226,000
F9
27
40
35
16
1 > of 2
Activity Base
Number of service requests
Number of bids
Number of customer design changes
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Total
177
185
161
50
end
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Transcribed Image Text:DII
F4
Instructions
a. Determine the activity rates for each of the three nonmanufacturing activity pools.
b. Determine the activity costs allocated to the three customers, using the activity rates in (a).
C.
c. Construct customer profitability reports for the three customers, dated for the year ended
December 31, using the activity costs in (b). The reports should disclose the gross profit and
income from operations associated with each customer.
d. Provide recommendations to management on how operations can be improved based on the
profitability reports in (c).
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