Cold Zone Mechancial Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows:

Price.......................................$75,000 per unit

Cost of goods sold...................................60000

Gross profit...............................$15,000 per unit

In addition, the company incurs selling and administrative expenses of $231,880. The company wishes to assign these costs to its three major customers, Good Knowledge University, Hot Shotz Arena, and Break-a-Leg Hospital. 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.................$ 83,720............................Number of service requests

Project bidding.....................61,360...........................................Number of bids

Engineering support................86,800...................Number of customer design changes

Total costs........................$231,880............................................................

Activity-base usage and unit volume information for the three customers is as follows:

Instructions
1. Determine the activity rates for each of the three non manufacturing activity pools.
2. Determine the activity costs allocated to the three customers, using the activity rates in (1).
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.
4. Provide recommendations to management, based on the profitability reports in (3).

Transcribed Image Text:

Good KnowledgeHot Shotz Break-a-Leg Hospital 210 50 142 Arena Total Number of service requests Number of bids Number of customer design changes Unit volume University 60 36 45 52 18 30 14 322 104 217 42