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

Price ..........$40,500 per unit

Cost of goods sold ....25,500

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

In addition, the company incurs selling and administrative expenses of $160,400. The company wishes to assign these costs to its three major customers, Coastal Atlantic University, Celebrity Arena, and Hope 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 activity cost pool and activity bases associated with these activities are:

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 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 the three customers dated for the year ended December 31, 2011, 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:

Activity Cost Pool Activity Customer service Project bidding Engineering support Activity Base S 66,500 Number of service requests Number of bids Number of customer design changes 34,500 59,400 Total costs $160,400 Coastal Atlantic University 110 14 75 Celebrity Number of service requests Number of bids Number of customer design changes Unit volume Arena 35 12 25 Hope Hospital 45 20 35 15 Total 190 46 135 30