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$1,110per unit Cost of goods sold 682 Gross profit$428per unit In addition, the company incurs selling and administrative expenses of $414,030. 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 A measure of activity that is related to changes in cost. Used in analyzing and classifying cost behavior.activity bases associated with these activities are:

Activity BudgetedActivity Cost Activity Base

Customer service $76,860 Number of service requests

Sales order processing 25,920 Number of sales orders

Advertising support 311,250 Number of ads placed

Total activity cost $414,030

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 62 340 25 427

Number of sales orders 300 640 140 1,080

Number of ads placed 25 180 44 249

Unit volume 810 810 810 2,430

Required:

1.Determine the The cost of an activity per unit of activity base.activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar.

Activity Rate

Customer Service____per serv. req.

Sales Order Processing ____per sls. order

Advertising Support ___per ad

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

Activity Costs

The WarehouseKosmo Co.Supply Universe

$ $ $

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. Enter all amounts as positive numbers.

Shrute Inc.Customer

Profitability Report

For the Year Ended December 31

The Warehouse Kosmo Co. SupplyUniverse

Revenues

Cost of goods sold

Gross profit

Selling and administrative activities:

Customer service cost

Sales order processing cost

Advertising support cost

Total selling and administrative

Income from operations