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 $675,000 Boxes of yarn sold to retail stores 295,400 Catalogs distributed 105,000 Skeins sold through catalog 60,000 Number of retail orders $1135,400 The knitting yarn is sold to retail outlets in bones, each containing 12 ckeins of yarn. The sale of partial boxes is not permined 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 Small Retail Sales 1-10 skers 1-10 boxes Medium Large 11-20 skeins 11-20 boxes Over 20 skeins Over 20 boxes An analysis of the previous year's records produced the following statistics Required: Order Size Small Medium Large Retail sales in boxes (12 skeins per box 2,000 Catalog sales in skeins 79.000 Number of retail orders Catalogs distributed 485 254.300 Total 45,000 178,000 225000 52,000 44,000 175,000 2415 1100 211300 125200 6,000 90800 1. Prepare a schedule showing Redwood Company's total selling cost for each order size and the per-dein selling cost within each order size 2. Explain how the analysis of the selling costs for skeins of knitting yarn is likely to impact future pricing and product decisions at Redwood Company ICMA adagd