Reddington Company sells craft kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Reddington, 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, Reddington incurs substantial selling costs, and the company 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 CategoryAmount Cost Driver

Sales commissions$829,500Boxes of yarn sold to retail stores

Catalogs$541,800Catalogs distributed

Cost of catalog sales$211,500Skeins sold through catalog

Credit and collection$108,000Number of retail orders

Total selling costs$1,690,800

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 sizeCatalog SalesRetail Sales

Small1-10 skeins1-10 boxes

Medium11-20 skeins11-20 boxes

Large Over 20 skeinsOver 20 boxes

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

Order size

SmallMedium LargeTotal

Retail sales in boxes (12 per box)3,50075,000198,000276,500

Catalog sales in skeins99,00072,00064,000235,000

Number of retail orders685 3,4157,90012,000

Catalogs246,725 518,775 137,500903,000

1.Create a schedule using the format below, showing Reddington 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. Circle those that apply.

• Management may want to consider offering discounts for large orders.
• Small orders are preferable to medium sized orders.
• Large orders are preferable to medium sized orders.
• Marketing should be focused on small sized orders.

Reddington Company

Computation of Selling Costs

By Order size and Per Skein within

Order size

SmallMediumLargeTotal

Sales Commissions

Catalogs

Cost of catalog sales

Credit and collection

Total cost for all orders of given size$$$$____

Units (skeins) sold

Unit cost per order of a given size