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 collection Total selling costs Amount Cost Driver $ 519,000 Boxes of yarn sold to retail stores 456,760 Catalogs distributed 128,400 Skeins sold through catalog 89,100 Number of retail orders. $1,193,260 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. Small Retail sales in boxes (12 skeins per box) Catalog sales in skeins Number of retail orders Catalogs distributed 92,000 615 282,530 Order Size Medium 4,000 64,500 65,000 3,065 447,830 Large 191,000 Total 259,500 57,000 6,220 183,160 214,000 9,900 913,520