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 $245,150. 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 coplers to consumers. The budgeted activity costs and activity bases associated with these activities are: Activity Budgeted Activity Cost Activity Base Customer service $36,240 Number of service requests Number of sales orders Sales order processing 28,210 Advertising support 180,700 Number of ads placed Total activity cost $245,150 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 50 10 180 240 Number of sales orders 250 110 550 910 Number of ads placed 20 10 100 130 Unit volume 650 650 650 1,950 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. 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 Warehouse Kosmo 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 operating income associated with each customer. 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 Operating income