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: Price $650 per unit 390 Cost of goods sold Gross profit $260 per unit In addition, the company incurs selling and administrative expenses of $252,160. 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 Sales order processing Advertising support $42,160 32,400 Number of service requests Number of sales orders 177,600 Number of ads placed Total activity cost $252,160 Supply Universe Total 230 310 Activity-base usage and unit volume information for the three customers is as follows: The Warehouse Kosmo Co. Number of service requests 70 10 Number of sales orders 250 110 Number of ads placed 20 10 Unit volume 710 710 540 900 90 120 710 2,130 Required: 1. Determine the activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar. Activity Rate Customer Service $ per serv. reg. Sales Order Processing $ per bid Advertising Support per customer design change 2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Activity Costs Unit volume 710 710 710 2,130 Required: 1. Determine the activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar. Activity Rate Customer Service $ per serv. reg. Sales Order Processing $ per bid Advertising Support $ per customer design change 2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Activity Costs The Warehouse $ Kosmo Co. Supply Universe $ 3. Construct customer profitability reports for the three customers, dated for the year ended December 31, 2016, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer. Enter all amounts as positive numbers, except for a negative income from operations, Shrute Inc. Customer Profitability Report For the Year Ended December 31 The Warehouse Kosmo Co. Supply Universe Revenues Cost of goods sold Gross profit Selling and administrative activities: Customer service Sales order processing Advertising support Total selling and administrative activities $ Income (loss) from operations
