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Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses Naper Inc. manufactures power equipment. Naper has two primary productsgenerators and air compressors.

  1. Construct and Interpret a Product Profitability Report, Allocating Selling and Administrative Expenses

    Naper Inc. manufactures power equipment. Naper has two primary productsgenerators 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 $1,270,960 $1,850,920 $3,121,880
    Cost of goods sold 953,220 1,388,190 2,341,410
    Gross profit $317,740 $462,730 $780,470
    Selling and administrative expenses 167,770
    Income from operations $612,700

    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 shown below.

    Activity Activity Base Activity Rate
    Sales order processing Sales orders $70 per sales order
    Post-sale customer service Service requests $190 per customer service request

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

    Generators Air Compressors
    Number of sales orders 344 834
    Number of service requests 74 375

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

    Sales Order Processing Activities Cost Post-sale Customer Service Activities Cost
    Generators - -
    Air Compressors - -
    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 one decimal place. 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 - - -

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