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 $720  per unit Cost of goods sold (430)   Gross profit $290  per unit In addition, the company incurs selling and administrative expenses of $229,820. 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   $33,000   Number of service requests Sales order processing   22,620   Number of sales orders Advertising support   174,200   Number of ads placed Total activity cost   $229,820       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 50 10 160 220           Number of sales orders 240 100 530 870           Number of ads placed 20 10 100 130           Unit volume 690 690 690 2070

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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 $720  per unit
Cost of goods sold (430)  
Gross profit $290  per unit

In addition, the company incurs selling and administrative expenses of $229,820. 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   $33,000   Number of service requests
Sales order processing   22,620   Number of sales orders
Advertising support   174,200   Number of ads placed
Total activity cost   $229,820      

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 50 10 160 220          
Number of sales orders 240 100 530 870          
Number of ads placed 20 10 100 130          
Unit volume 690 690 690 2070          
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 operating income associated
with each customer.
Shrute Inc.
Customer Profitability Report
For the Year Ended December 31
The Warehouse
Kosmo Co.
Supply Universe
Revenues
$
2$
Cost of goods sold
Gross profit
Selling and administrative activities:
Customer service
Sales order processing
Advertising support
Total selling and administrative activities
Operating income
Transcribed Image Text: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 operating income associated with each customer. Shrute Inc. Customer Profitability Report For the Year Ended December 31 The Warehouse Kosmo Co. Supply Universe Revenues $ 2$ Cost of goods sold Gross profit Selling and administrative activities: Customer service Sales order processing Advertising support Total selling and administrative activities Operating income
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