Allocating selling and administrative expenses using activity-based OBJ. 5 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 $1,110 per unit Cost of goods sold 682 ______ Gross profit $ 428 per unit ______ ______ In addition, the company incurs selling and administrative expenses of $414,030. 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 $ 76,860 Number of service requests Sales order processing 25,920 Number of sales orders Advertising support 311,250 Number of ads placed ________ Total activity cost $414,030 ________ ________ Activity-base usage and unit volume information for the three customers is as follows:

The Supply Warehouse Kosmo Co. Universe Total Number of service requests 62 340 25 427 Number of sales orders 300 640 140 1,080 Number of ads placed 25 180 44 249 Unit volume 810 810 810 2,430 Instructions 1. Determine the activity rates for each of the three nonmanufacturing activities.

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).