Allocating Selling and Administrative Expenses using Activity-Based Costing

Western Mechanical Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows:

Price	$740 per unit
Cost of goods sold	440
Gross profit	$300	per unit

In addition, the company incurs selling and administrative expenses of $278,430. The company wishes to assign these costs to its three major customers, Coastal Atlantic University, Celebrity Arena, and Hope Hospital. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are:

Activity		Budgeted Activity Cost		Activity Base
Customer service		$37,200		Number of service requests
Project bidding		25,230		Number of bids
Engineering support		216,000		Number of customer design changes
	Total costs	$278,430

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

	Coastal Atlantic University			Celebrity Arena		Hope Hospital		Total
Number of service requests	50			10		180		240
Number of bids	240			100		530		870
Number of customer design changes	20			20		110		150
Unit volume	630			630		630		1,890

Required:

3. Construct customer profitability reports for the three customers, dated for the year ended December 31, 2014, 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, except for a negative income from operations.