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	$720	per unit
Cost of goods sold	(430)
Gross profit	$290	per unit

In addition, the company incurs selling and administrative expenses of $212,210. 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			$40,770		Number of service requests
Sales order processing			26,240		Number of sales orders
Advertising support			145,200		Number of ads placed
	Total activity cost		$212,210

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

	The Warehouse			Kosmo Co.		Supply Universe		Total
Number of service requests	60			10		200		270
Number of sales orders	230			100		490		820
Number of ads placed	20			10		80		110
Unit volume	680			680		680		2,040

Required:

Question Content Area

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

	Activity Rate
Customer Service	$fill in the blank	per serv. req.
Sales Order Processing	$fill in the blank	per sls. order
Advertising Support	$fill in the blank	per ad

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

	Activity Costs
The Warehouse	$fill in the blank
Kosmo Co.	$fill in the blank
Supply Universe	$fill in the blank

Feedback Area

Feedback

1. Calculate for each activity:

Budgeted Activity Cost Total Activity-Base Usage = Activity Rate

2. Calculate for each customer:

Activity-Base Usage x Activity Rate from Req. (1) = Activity Cost; Sum all activity costs per customer to determine total nonmanufacturing activity costs.

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

	The Warehouse	Kosmo Co.	Supply Universe
Revenues	$fill in the blank	$fill in the blank	$fill in the blank
Cost of goods sold	fill in the blank	fill in the blank	fill in the blank
Gross profit	$fill in the blank	$fill in the blank	$fill in the blank
Selling and administrative activities:
Customer service	$fill in the blank	$fill in the blank	$fill in the blank
Sales order processing	fill in the blank	fill in the blank	fill in the blank
Advertising support	fill in the blank	fill in the blank	fill in the blank
Total selling and administrative activities	$fill in the blank	fill in the blank	fill in the blank
Operating income	$fill in the blank	$fill in the blank	$fill in the blank