Allocating selling and administrative expenses using activity-based OBJ. 5 costing 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 60,000 ______ 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:

Good Knowledge Hot Shotz Break-a-Leg University Arena Hospital Total Number of service requests 60 52 210 322 Number of bids 36 18 50 104 Number of customer design changes 45 30 142 217 Unit volume 22 14 6 42 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, 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).