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	$690	per unit
Cost of goods sold	(410)
Gross profit	$280	per unit

In addition, the company incurs selling and administrative expenses of $209,310. 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			$38,610		Number of service requests
Sales order processing			26,600		Number of sales orders
Advertising support			144,100		Number of ads placed
	Total activity cost		$209,310

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	270			110		570		950
Number of ads placed	20			10		80		110
Unit volume	630			630		630		1,890

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 87a363fcc003f99_1	per serv. req.
Sales Order Processing	$fill in the blank 87a363fcc003f99_2	per sls. order
Advertising Support	$fill in the blank 87a363fcc003f99_3	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 87a363fcc003f99_4
Kosmo Co.	$fill in the blank 87a363fcc003f99_5
Supply Universe	$fill in the blank 87a363fcc003f99_6

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 51a4b002a062027_1	$fill in the blank 51a4b002a062027_2	$fill in the blank 51a4b002a062027_3
Cost of goods sold	fill in the blank 51a4b002a062027_4	fill in the blank 51a4b002a062027_5	fill in the blank 51a4b002a062027_6
Gross profit	$fill in the blank 51a4b002a062027_7	$fill in the blank 51a4b002a062027_8	$fill in the blank 51a4b002a062027_9
Selling and administrative activities:
Customer service	$fill in the blank 51a4b002a062027_10	$fill in the blank 51a4b002a062027_11	$fill in the blank 51a4b002a062027_12
Sales order processing	fill in the blank 51a4b002a062027_13	fill in the blank 51a4b002a062027_14	fill in the blank 51a4b002a062027_15
Advertising support	fill in the blank 51a4b002a062027_16	fill in the blank 51a4b002a062027_17	fill in the blank 51a4b002a062027_18
Total selling and administrative activities	$fill in the blank 51a4b002a062027_19	fill in the blank 51a4b002a062027_20	fill in the blank 51a4b002a062027_21
Operating income	$fill in the blank 51a4b002a062027_22	$fill in the blank 51a4b002a062027_23	$fill in the blank 51a4b002a062027_24