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 $31$:

Line Item Description 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 $(610,000)$

Operating income $$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

The controller determined the following activity$-$base usage information about each product:

Line Item Description Generators Air Compressors

Number of sales orders $3,0004,000$

Number of service requests $225550$

Question Content Area

a$.$ Determine the activity cost of each product for sales order processing and post$-$sale customer service activities.

Line Item Description Sales Order Processing

Activities Cost Post$-$sale Customer Service

Activities Cost

Generators fill in the blank $1$ of $6$$

fill in the blank $2$ of $6$$

Air Compressors fill in the blank $3$ of $6$

fill in the blank $4$ of $6$

Total fill in the blank $5$ of $6$$

fill in the blank $6$ of $6$$