CH 26-5

INSTRUCTIONS

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

In addition, the company incurs selling and administrative expenses of $247,202. The company wishes to assign these costs to its three major customers, Good Knowledge University, Hot Shotz Arena, and Break-a-Leg 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-base usage and unit volume information for the three customers is as follows:

1. Determine the activity rates for each of the three nonmanufacturing activity pools.

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

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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. Enter all amounts as positive numbers, except for a negative income from operations.

LABELS AND DESCRIPTIONS

Labels
December 31
For the Year Ended December 31
Selling and administrative activities
Amount Descriptions
Break-a-Leg Hospital
Cost of goods sold
Customer service
Engineering support
Good Knowledge University
Gross profit
Hot Shotz Arena
Income from operations
Other income (expense)
Plantwide factory overhead rate
Product cost distortion
Project bidding
Revenues
Total selling and administrative activities

ACTIVITY RATES

1. Determine the activity rates for each of the three nonmanufacturing activity pools.

ACTIVITY COSTS

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

CPR

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. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Less, Plus or colons (:) will automatically appear if required. Enter all amounts as positive numbers, except for a negative income from operations.

Price per unit Cost of goods sold Gross profit per unit 75,150.00 59,050.00 $16,100.00 1 2 3