Cooler Master Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows:

Category

Per Unit Dollar Amount

Price

$$50,000$

Cost of goods sold

$28,000$

Gross profit

$22,000$

In addition, the company incurs selling and administrative expenses of $$226,250.$ The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are:

Activity

Budgeted Activity Cost

Activity Base

Customer service

$$51,500$

Number of service requests

Project bidding

$64,000$

Number of bids

Engineering support

$110,500$

Number of customer design changes

Total costs

$226,000$

Activity$-$base usage and unit volume information for the three customers is as follows:

Activity

Gough Industries

Breen Inc.

The Martin Group

Total

Number of service requests

$35$

$27$

$115$

$177$

Number of bids

$50$

$40$

$95$

$185$

Number of customer design changes

$18$

$35$

$108$

$161$

Unit volume

$30$

$16$

$4$

$50$

Instructions

Provide a table for parts a and b$.$

Determine the activity rates for each of the three nonmanufacturing activity pools.

Determine the activity costs allocated to the three customers, using the activity rates in $($a$).$

Construct customer profitability reports for the three customers, dated for the year ended December $31,$ using the activity costs in $($b$).$ The reports should disclose the gross profit and income from operations associated with each customer.

Provide recommendations to management on how operations can be improved based on the profitability reports in $($c$).$