Allocating selling and administrative expenses using activity-based costing Instructions Labels and Amount Descriptions Activity rates Activity Costs Customer Profitability Report X Instructions Cold Zone Mechancial Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows:

1 Price per unit $75,050.00 2 Cost of goods sold 59,850.00 3 Gross profit per unit $15,200.00

In addition, the company incurs selling and administrative expenses of $247,175. 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:

1 Activity Budgeted Activity Cost Activity Base 2 Customer service $88,408.00 Number of service requests 3 Project bidding 66,538.00 Number of bids 4 Engineering support 92,229.00 Number of customer design changes 5 Total costs $247,175.00

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 64 52 228 344 Number of bids 34 17 52 103 Number of customer design changes 44 32 137 213 Unit volume 23 13 5 41

Required: 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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. Enter all amounts as positive numbers, except for a negative income from operations.

X Labels and Amount Descriptions

Labels December 31 For the Year Ended December 31 Selling and administrative activities Amount Descriptions Break-a-Leg Hospital Cost of goods sold Customer service Engineering support Good Knowledge University Gross profit Hot Shotz Arena Income from operations Other income (expense) Plantwide factory overhead rate Product cost distortion Project bidding Revenues Total selling and administrative activities

X Activity rates Shaded cells have feedback. 1. Determine the activity rates for each of the three nonmanufacturing activity pools. Score: 30/30

1 per serv. req. 2 per bid 3 per design change

Points: 6 / 6 Feedback Check My Work Calculate for each activity: Total activity cost Total activity base = Activity Rate X Activity Costs Shaded cells have feedback. 2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Score: 0/30

1 Activity Costs 2 3 4

Points: 0 / 6 Feedback Check My Work Calculate for each customer: Activity usage x Activity rate from Req. (1) = Activity cost; Sum all activity costs per customer to determine a total and divide the total overhead by budgeted units to derive the activity costs per unit for each customer.