Allocating Selling and Administrative Expenses using Activity-Based Costing

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

In addition, the company incurs selling and administrative expenses of $226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. 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:

Required:

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

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 operating income associated with each customer.

ebook Show Me How Chapter 18 Homework Printem Alocating Selling and Administrative Expenses using Activity-Based Costing Arctic Air Inc, manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: Price Cost of goods sold Gross profit $60,000 per unit (28,000) $32,000 per unit In addition, the company incurs selling and administrative expenses of $226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. 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 boses associated with these activities are: Activity Customer service Project bidding Engineering support Budgeted Activity Cost $31,500 74,000 120,750 $226,250 Activity Base Number of service requests Number of bids Number of customer design changes Total activity cost Activity-base usage and unit volume information for the three customers is as follows: Breen Inc. Gough Industries 36 The Martin Group 116 Total 180 Number of service requests 28 Gough Industries 36 50 18 30 Number of service requests Number of bids Number of customer design changes Unit volume Breen Inc. 28 40 35 16 The Martin Group Total 116 180 95 185 161 108 4 50 Required: 1. Determine the activity rates for each of the three nonmanufacturing activity pools. Round to the nearest whole dollar. Activity Rate Customer Service per serv.rea Project Bidding per bid Engineering Support per design changes 2. Determine the activity costs allocated to the three customers, using the activity rates in (1) Activity Costs Gough Industries Breen Inc. The Martin Group ebook Br Show Me How Print tam Chapter 18 Homework Gough Industries Breen Inc. II] The Martin Group 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 Arctic Air Inc. Customer Profitability Report For the Year Ended December 31 Gough Industries Breen Inc. The Martin Group Revenues Cost of goods sold Gross profit Selling and administrative activities Customer service Project bidding Engineering support Total selling and administrative activities DONO DO Operating income (loss)