Chapter 18 Homework eBook Show Me How Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses Naper Inc. manufactures power equipment. Naper has two primary products-generators and air compressors. The following report was prepared by the controller for Naper's senior marketing management for the year ended December 31: Air Generators Compressors Total Revenue $4,200,000 $3,000,000 $7,200,000 Cost of goods sold (2,940,000) (2,100,000) (5,040,000) Gross profit $1,260,000 $900,000 $2,160,000 Selling and administrative expenses (610,000) Income from operations $1,550,000 The marketing management team was concerned that the selling and administrative expenses were not traced to the products. Marketing management believed that some products consumed larger amounts of selling and administrative expense than did other products. To verify this, the controller was asked to prepare a complete product profitability report, using activity-based costing, The controller determined that selling and administrative expenses consisted of two activities: sales order processing and post-sale customer service. The controller was able to determine the activity base and activity rate for each activity, as follows: Activity Activity Base Activity Rate Sales order processing Sales orders $65 per sales order Post-sale customer service Service requests $200 per customer service request Check My Work Previous Next Chapter 18 Homework eBook Show Me How The marketing management team was concerned that the selling and administrave expenses were not traced to the products. Marketing management believed that some products consumed Targer amounts of selling and administrative expense than did other products. To verify this, the controller was asked to prepare a complete product profitability report, using activity-based costing. The controller determined that selling and administrative expenses consisted of two activities: sales order processing and post-sale customer service. The controller was able to determine the activity base and activity rate for each activity, as follows: Activity Activity Base Activity Rate Sales order processing Sales orders $65 per sales order Post-sale customer service Service requests $200 per customer service request The controller determined the following activity-base usage information about each product: Generators Air Compressors Number of sales orders 3,000 4,000 Number of service requests 225 550 a. Determine the activity cost of each product for sales order processing and post-sale customer service activities. Sales Order Processing Post-sale Customer Service Activities Cost Activities Cost Generators Air Compressors Total $ $ Next > Check My Work Previous Next Chapter 18 Homework eBook Show Me How Total b. Use the information in (a) to prepare a complete product profitability report dated for the year ended December 31. Calculate the gross profit to sales and the income from operations to sales percentages for each product. Round percentages to two decimal places. Enter all amounts as positive numbers. Naper Inc. Product Profitability Report For the Year Ended December 31 Generators Air Compressors Total Revenues $ Cost of goods sold Gross profit $ $ $ Sales order processing $ $ $ Post-sale customer service Total selling and administrative expense $ $ $ Income from operations $ $ $ Gross profit as a percentage of sales % % Income from operations as a percentage of sales % % C. Interpret the product profitability report, Check My Work Previous Next