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: Revenue Cost of goods sold Gross profit Selling and administrative expenses Income from operations Generators Air Compressors Total $4,200,000 $3,000,000 $7,200,000 .(2,940,000) (2,100,000) (5,040,000) $1,260,000 $900,000 $2,160,000 (610,000) $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 Sales order processing Post-sale customer service Activity Base Activity Rate Sales orders $65 per sales order Service requests $200 per customer service request The controller determined the following activity-base usage information about each product: Generators Number of sales orders Number of service requests Air Compressors 4,000 3,000 225 550 Activity Sales order processing Post-sale customer service Activity Base Sales orders Service requests Activity Rate $65 per sales order $200 per customer service request The controller determined the following activity-base usage Information about each product: Generators Air Compressors 3,000 4,000 Number of sales orders 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 Feedback 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 poo Gross profit enerators ir Compressors otal Feedback Use the information in (a) to prepare a complete product profitability report dated for the year ended December 31. alculate the gross profit to sales and the income from operations to sales percentages for each product. Round Sercentages 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 8 JIJI! Income from operations Gross profit as a percentage of sales % Income from operations as a percentage of sales % % a
