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:

Line Item Description Amount

Price $$710$ per unit

Cost of goods sold $(430)$

Gross profit $$280$ per unit

In addition, the company incurs selling and administrative expenses of $$216,320.$ 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 $$31,080$ Number of service requests

Sales order processing $29,040$ Number of sales orders

Advertising support $156,200$ Number of ads placed

Total activity cost $$216,320$

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

Line Item Description The

Warehouse Kosmo Co$.$ Supply

Universe Total

Number of service requests $4010160210$

Number of sales orders $250110520880$

Number of ads placed $201080110$

Unit volume $7207207202,160$

Required:

Question Content Area

$1.$ Determine the activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar.

Activity Activity Rate

Customer Service fill in the blank $1$ of $3$$

per serv. req.

Sales Order Processing fill in the blank $2$ of $3$$

per sls$.$ order

Advertising Support fill in the blank $3$ of $3$$

per ad

$2.$ Determine the activity costs allocated to the three customers, using the activity rates in $(1).$

Activity Activity Costs

The Warehouse fill in the blank $1$ of $3$$

Kosmo Co$.$ fill in the blank $2$ of $3$$

Supply Universe fill in the blank $3$ of $3$$

Question Content Area

$3.$ 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 $31$

Description The Warehouse Kosmo Co$.$ Supply Universe

Revenues $Revenues

$Revenues

$Revenues

Cost of goods sold Cost of goods sold

Cost of goods sold

Cost of goods sold

Gross profit $Gross profit

$Gross profit

$Gross profit

Selling and administrative activities:

Customer service $Customer service

$Customer service

$Customer service

Sales order processing Sales order processing

Sales order processing

Sales order processing

Advertising support Advertising support

Advertising support

Advertising support

Total selling and administrative activities $Total selling and administrative activities

Total selling and administrative activities

Total selling and administrative activities

Operating income $Operating income

$Operating income

$Operating income