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 manufac tures, 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
Sines commissions
Catzlogs
Cost of catalog saten.
Credit and collection
fotal seting costs
Amount
Cost Driver
$675.000
Boxes of yuen sold to retall stores
295.400
Catalogs distributed
105,000
Skamm saiki through catsing
60,000
Number of retail orders
$1,135,400
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
Smil
Medum
Large
Catalog Sales
1-10 skem
11-20 skens
Over 20 skerm
Retail Sales
1-10 boves
11-20 boxes
Over 20.00
An analysis of the previous year's reconds produced the following statistics
Order Size
Small
Medium
Large
Total
Retail sales in boxes (12 ms per boo
2.000
45,000
178,000
225,000
Catalog sales in skens
79,000
52.000
44,000
175,000
Number of retall orders.
485
2.415
3,100
6,000
Catalogs cstributed
254.300
211,300
125.200
590.800
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
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