Exercise $5-35$ ABC; Selling Costs $($LO $5-2,5-4)$

Redwood Company sells craft kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Redwood, while others are purchased for resale. For the products it manufactures, the company currently bases its selling prices on a product$-$costing system that accounts for direct material, direct labor, and the associated overhead costs. In addition to these product costs, Redwood incurs substantial selling costs, and Roger Jackson, controller, has suggested that these selling costs should be included in the product pricing structure.

After studying the costs incurred over the past two years for one of its products, skeins of knitting yarn, Jackson has selected four categories of selling costs and chosen cost drivers for each of these costs. The selling costs actually incurred during the past year and the cost drivers are as follows:

Cost Category Amount Cost Driver

Sales commissions $ $864,000$ Boxes of yarn sold to retail stores

Catalogs $385,850$ Catalogs distributed

Cost of catalog sales $114,000$ Skeins sold through catalog

Credit and collection $82,500$ Number of retail orders

Total selling costs $ $1,446,350$

The knitting yarn is sold to retail outlets in boxes, each containing $12$ skeins of yarn. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales. The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog orders. Jackson believes that the selling costs vary significantly with the size of the order. Order sizes are divided into three categories as follows:

Order Size Catalog Sales Retail Sales

Small $110$ skeins $110$ boxes

Medium $1120$ skeins $1120$ boxes

Large Over $20$ skeins Over $20$ boxes

An analysis of the previous year$$s records produced the following statistics.

Order Size

Small Medium Large Total

Retail sales in boxes $(12$ skeins per box$)4,50052,500183,000240,000$

Catalog sales in skeins $84,00057,00049,000190,000$

Number of retail orders $5352,6654,3007,500$

Catalogs distributed $351,830319,370100,500771,700$

Required:

$1.$ Prepare a schedule showing Redwood Company$$s total selling cost for each order size and the per$-$skein selling cost within each order size. $($Round your intermediate calculations and unit cost per order to $2$ decimal places.$)$

$2.$ An analysis of selling costs shows: $($You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.$)$

check all that apply

Management may want to consider offering discounts for large orders.unanswered

Small orders are preferable to medium sized orders.unanswered

Large orders are preferable to medium sized orders.unanswered

Marketing should be focused on small sized orders.