< 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: Generators Air 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 Operating income (610,000) $1,550,000 I 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 Sales order processing Post-sale customer service Activity Base Sales orders Activity Rate $65 per sales order Service requests $200 per customer service request The controller determined the following activity-base usage information about each product C Generators Air Compressors Number of sales orders 3,000 Number of service requests 225 4,000 550 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 Generators Air Compressors Total Activities Cost Activities Cost Feedback Check My Work a. Calculate for each product: Activity-Base Usage x Activity Rate Activity Cost. Add both costs to obtain the total for each activity b. Use the information in (a) to prepare a complete product profitability report dated for the year ended December 31. Compute the gross profit to sales and the operating income to sales percentages for each product. Round percentages to two decimal places. Enter all amounts as positive numbers Naper Inc. Product Profitability Report b. Use the information in (a) to prepare a complete product profitability report dated for the year ended December 31. Compute the gross profit to sales and the operating income 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 Description Revenues Cost of goods sold Generators Gross profit Selling and administrative expenses: Sales order processing Post-sale customer service Total selling and administrative expense Operating Income Gross profit as a percentage of sales Operating income as a percentage of sales Feedback Check My Work Air Compressors Total 000 0000