Question 3 the revenues and cost of goods have to be subtracted in order to get the answer of 960,000 ( I multiplied 32000 by 30 and I was told that 32000 isn't the revenue amount for question 3 and 30 isn't the amount need for question 3 in terms of goods sold) also 512,000 and 128,000. The question is as follows: Allocating selling and administrative expenses using activity-based costing Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: Line Item Description Amount Price $60,000 per unit Cost of goods sold (28,000) Gross profit $32,000 per unit 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 Budgeted Activity Cost Activity Base Customer service $31,500 Number of service requests Project bidding 74,000 Number of bids Engineering support 120,750 Number of customer design changes Total activity cost $226,250 Activity-base usage and unit volume information for the three customers is as follows: Line Item Description Gough Industries Breen Inc. The Martin Group Total Number of service requests 36 28 116 180 Number of bids 50 40 95 185 Number of customer design changes 18 35 108 161 Unit volume 30 16 4 50 Required: Question Content Area 1. Determine the activity rates for each of the three nonmanufacturing activity pools. Round to the nearest whole dollar. Activity Activity Rate Customer Service Project Bidding Engineering Support 2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Activity Activity Costs Gough Industries Breen Inc. The Martin Group Feedback Area Feedback 1. Calculate for each activity: Budgeted Activity Cost ÷ Total Activity-Base Usage = Activity Rate 2. Calculate for each customer: Activity-Base Usage x Activity Rate from Req. (1) = Activity Cost; Sum all activity costs per customer to determine total nonmanufacturing activity costs. Question Content Area 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 operating income associated with each customer. Arctic Air Inc.Customer Profitability ReportFor the Year Ended December 31 Description Gough Industries Breen Inc. The Martin Group Revenues Cost of goods sold Gross profit Selling and administrative activities: Customer service Project bidding Engineering support Total selling and administrative activities Operating income (loss) Feedback Area Feedback 3. Set up a customer profitability report for each customer as: Revenues - Cost of Goods Sold = Gross Profit; Gross Profit - Activity Expenses = Operating Income Revenues = Price per Unit x Unit Volume Cost of Goods Sold = Cost of Goods Sold per Unit x Unit Volume

Question 3 the revenues and cost of goods have to be subtracted in order to get the answer of 960,000 ( I multiplied 32000 by 30 and I was told that 32000 isn't the revenue amount for question 3 and 30 isn't the amount need for question 3 in terms of goods sold) also 512,000 and 128,000. The question is as follows: Allocating selling and administrative expenses using activity-based costing Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: Line Item Description Amount Price $60,000 per unit Cost of goods sold (28,000) Gross profit $32,000 per unit 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 Budgeted Activity Cost Activity Base Customer service $31,500 Number of service requests Project bidding 74,000 Number of bids Engineering support 120,750 Number of customer design changes Total activity cost $226,250 Activity-base usage and unit volume information for the three customers is as follows: Line Item Description Gough Industries Breen Inc. The Martin Group Total Number of service requests 36 28 116 180 Number of bids 50 40 95 185 Number of customer design changes 18 35 108 161 Unit volume 30 16 4 50 Required: Question Content Area 1. Determine the activity rates for each of the three nonmanufacturing activity pools. Round to the nearest whole dollar. Activity Activity Rate Customer Service Project Bidding Engineering Support 2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Activity Activity Costs Gough Industries Breen Inc. The Martin Group Feedback Area Feedback 1. Calculate for each activity: Budgeted Activity Cost ÷ Total Activity-Base Usage = Activity Rate 2. Calculate for each customer: Activity-Base Usage x Activity Rate from Req. (1) = Activity Cost; Sum all activity costs per customer to determine total nonmanufacturing activity costs. Question Content Area 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 operating income associated with each customer. Arctic Air Inc.Customer Profitability ReportFor the Year Ended December 31 Description Gough Industries Breen Inc. The Martin Group Revenues Cost of goods sold Gross profit Selling and administrative activities: Customer service Project bidding Engineering support Total selling and administrative activities Operating income (loss) Feedback Area Feedback 3. Set up a customer profitability report for each customer as: Revenues - Cost of Goods Sold = Gross Profit; Gross Profit - Activity Expenses = Operating Income Revenues = Price per Unit x Unit Volume Cost of Goods Sold = Cost of Goods Sold per Unit x Unit Volume

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 5PA: Allocating selling and administrative expenses using activity-based costing Arctic Air Inc....

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Line Item Description	Amount
Price	$60,000 per unit
Cost of goods sold	(28,000)
Gross profit	$32,000 per unit

Activity	Budgeted Activity Cost	Activity Base
Customer service	$31,500	Number of service requests
Project bidding	74,000	Number of bids
Engineering support	120,750	Number of customer design changes
Total activity cost	$226,250

Line Item Description	Gough Industries	Breen Inc.	The Martin Group	Total
Number of service requests	36	28	116	180
Number of bids	50	40	95	185
Number of customer design changes	18	35	108	161
Unit volume	30	16	4	50

Question Content Area

1. Determine the activity rates for each of the three nonmanufacturing activity pools. Round to the nearest whole dollar.

Activity	Activity Rate
Customer Service
Project Bidding
Engineering Support

2. Determine the activity costs allocated to the three customers, using the activity rates in (1).

Activity	Activity Costs
Gough Industries
Breen Inc.
The Martin Group

Feedback Area

Feedback

1. Calculate for each activity:

Budgeted Activity Cost ÷ Total Activity-Base Usage = Activity Rate

2. Calculate for each customer:

Activity-Base Usage x Activity Rate from Req. (1) = Activity Cost; Sum all activity costs per customer to determine total nonmanufacturing activity costs.

Question Content Area

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 operating income associated with each customer.

Arctic Air Inc.Customer Profitability ReportFor the Year Ended December 31

Description	Gough Industries	Breen Inc.	The Martin Group
Revenues
Cost of goods sold
Gross profit
Selling and administrative activities:
Customer service
Project bidding
Engineering support
Total selling and administrative activities
Operating income (loss)

Feedback Area

Feedback

3. Set up a customer profitability report for each customer as: Revenues - Cost of Goods Sold = Gross Profit; Gross Profit - Activity Expenses = Operating Income

Revenues = Price per Unit x Unit Volume

Cost of Goods Sold = Cost of Goods Sold per Unit x Unit Volume

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