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	$1,110	per unit
Cost of goods sold	682
Gross profit	$428	per 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 activity bases associated with these activities are:

Activity	Budgeted Activity 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:

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 890427ffc04af92_1 per serv. req.
Sales Order Processing	$fill in the blank 890427ffc04af92_2 per sls. order
Advertising Support	$fill in the blank 890427ffc04af92_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 890427ffc04af92_4
Kosmo Co.	$fill in the blank 890427ffc04af92_5
Supply Universe	$fill in the blank 890427ffc04af92_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 income from operations associated with each customer. Enter all amounts as positive numbers.

	The Warehouse	Kosmo Co.	Supply Universe
Revenues	$fill in the blank 715079f90057fe1_1	$fill in the blank 715079f90057fe1_2	$fill in the blank 715079f90057fe1_3
Cost of goods sold	fill in the blank 715079f90057fe1_4	fill in the blank 715079f90057fe1_5	fill in the blank 715079f90057fe1_6
Gross profit	$fill in the blank 715079f90057fe1_7	$fill in the blank 715079f90057fe1_8	$fill in the blank 715079f90057fe1_9
Selling and administrative activities:
Customer service cost	$fill in the blank 715079f90057fe1_10	$fill in the blank 715079f90057fe1_11	$fill in the blank 715079f90057fe1_12
Sales order processing cost	fill in the blank 715079f90057fe1_13	fill in the blank 715079f90057fe1_14	fill in the blank 715079f90057fe1_15
Advertising support cost	fill in the blank 715079f90057fe1_16	fill in the blank 715079f90057fe1_17	fill in the blank 715079f90057fe1_18
Total selling and administrative	$fill in the blank 715079f90057fe1_19	$fill in the blank 715079f90057fe1_20	$fill in the blank 715079f90057fe1_21
Income from operations	$fill in the blank 715079f90057fe1_22	$fill in the blank 715079f90057fe1_23	$fill in the blank 715079f90057fe1_24