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 Sales commissions Catalogs Cost of catalog sales Credit and collection72,600 Number of retail orders Total selling costs Amount Cost Driver 462,000 Boxes of yarn sold to retail stores 323,180 Catalogs distributed 108,600 Skeins sold through catalog 966,380 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 Small Medium Large Catalog Sales 1-10 skeins 11-20 skeins Over 20 skeins Retail Sales 1-10 boxes 11-20 boxes 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) Catalog sales in skeins Number of retail orders Catalogs distributed 3,000 48,000 180,000 231,000 46,000 181,000 6,600 81,000 54,000 505 2,515 3,580 230,690 254,870 160,800 646,360 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.) REDWOOD COMPANY Computation of Selling Costs By Order Size and Per Skein Within Each Order Size Order Size Small Medium Large Total Sales commissions Catalogs Cost of catalog sales Credit and collection Total cost for all orders of a given size $175,500S 283,500$ 507,380$966,380 Units (skeins) sold Unit cost per order of a given size 96,000 360,000 462,000 80,400 27,600 39,380 6,000 $ 115.345 127,435 32,400 27,665 323,180 108,600 72,600 48,600 5,555 2,206,000 0.23
