Price $60,000 per unit Cost of goods sold 28,000 Gross profit $32,000 per unit Budgeted Activity Activity Activity Base Cost Gustomer $ 31,500 Number of service requests service Project bidding74,000 Number of bids Engineering Number of customer design 120,750 support changes Total costs $226,250 Activity- base usage and unit volume information for the three customers is as follows: Gough Industries Breen The Martin Total Inc. Group Number of service 36 28 116 180 requests Number of bids 50 40 95 185 Number of customer 18 35 108 161 design changes Unit volume 30 16 4 50
Allocating selling and administrative expenses using activity - based costing
Artic Air Inc. manufactures cooling units for commercial buildings.The price and cost of goods sold for each units are as follows:
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 services,project bidding,and engineering support.The engineering support is in the form of engineering changes thet are placed by the customer to change the design of a product.The budgeted activity costs and activity bases associated with these activities are:
instructions
1.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 tile three customers,dated for the year ended December 31,using the activity costs in (2).The report should disclose the gross profit and income from operations associated with each customer.
4.Provide recommendations to management, based on the profitability reports im (3)
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