Problem 1 Dodson Company The Dodson Company manufactures and distributes three types of electronic products, Zymol, Zybat and Zycot The following details the unit sales, selling prices and manufacturing costs of the three electronic devices Zymol Zybat Zycot Sales Price $100 $120 $180 Manufacturing Cost $60 $80 $110 Number of units sold 15,000 13,000 12,000 Selling, general and administrative (SG A) expenses are $1,170,000 SG A expenses are currently being allocated based upon sales revenue for the three products The Dodson Company is considering allocating SG A expenses under an activity based costing methodology as follows Upon further investigation of the SG A expenses, (50 percent) are shown to be for marketing and advertising Each product has its own advertising and marketing budget , administered by one of the three marketing managers Zycot, the premier product, is advertised heavily Sixty percent of the marketing and advertising budget goes toward Zycot, twenty percent to Zymol and twenty percent to Zybat The remaining SG A expenses consist of distribution and administrative costs (25 percent) and selling costs (25 percent) The distribution and administration department is responsible for arranging shipping and for billing the customers Customers pay transportation charges directly to the common carrier Upon analysis, each electronic product places equal demands on the distribution and administration department and each consumes about the same resources as the others Selling costs consist primarily of commissions paid to independent salespeople The commissions are based upon gross margin on the product (ie sales revenue less manufacturing costs) Required Prepare an income statement for each of the three electronic products with SG A expenses allocated based upon sales revenue for the three products Identify the most and least profitable products Prepare an income statement for each of the three electronic products with SG A expenses allocated based upon activity based costing for the three products Identify the most and least profitable product

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Problem 1: Dodson Company The Dodson Company manufactures and distributes three types of electronic products, Zymol, Zybat and Zycot. The following details the unit sales,

Problem 1: Dodson Company

The Dodson Company manufactures and distributes three types of electronic products, Zymol, Zybat and Zycot. The following details the unit sales, selling prices and manufacturing costs of the three electronic devices:

	Zymol	Zybat	Zycot
Sales Price	$100	$120	$180

Manufacturing Cost	$60	$80	$110

Number of units sold	15,000	13,000	12,000

Selling, general and administrative (SG&A) expenses are $1,170,000. SG&A expenses are currently being allocated based upon sales revenue for the three products.

The Dodson Company is considering allocating SG&A expenses under an activity based costing methodology as follows:

Upon further investigation of the SG&A expenses, (50 percent) are shown to be for marketing and advertising. Each product has its own advertising and marketing budget , administered by one of the three marketing managers. Zycot, the premier product, is advertised heavily. Sixty percent of the marketing and advertising budget goes toward Zycot, twenty percent to Zymol and twenty percent to Zybat.

The remaining SG&A expenses consist of distribution and administrative costs (25 percent) and selling costs (25 percent). The distribution and administration department is responsible for arranging shipping and for billing the customers. Customers pay transportation charges directly to the common carrier. Upon analysis, each electronic product places equal demands on the distribution and administration department and each consumes about the same resources as the others. Selling costs consist primarily of commissions paid to independent salespeople. The commissions are based upon gross margin on the product (ie: sales revenue less manufacturing costs).

Required:

Prepare an income statement for each of the three electronic products with SG&A expenses allocated based upon sales revenue for the three products. Identify the most and least profitable products.

Prepare an income statement for each of the three electronic products with SG&A expenses allocated based upon activity based costing for the three products. Identify the most and least profitable product