Uni Utilities (equipment Overtime (hourly) Unit Unit Unit Rework Shift differential Spoilage Required: Choose two activities or accounts from each of the four classifi agree or disagree with the ABC project team's classification. ur classifications and explain wh catalog. Some of t products it manufa that accounts for direc he Exercise 5-35 Redwood Company sells craft kits and supplies to retail outlets and through its items are manufactured by Redwood, while others are purchased for resale. For the tures, the company currently bases its selling prices on a product-costing system material, direct labor, and the associated overhead costs. In addition to these product incurs substantial selling costs, and Roger Jackson, controller, has sugg should be included in the product pricing structure. ABC; Selling Costs LO 5-2, 5-4) costs, Redwood gested that these selling cost Robert Adams and Ray Carter. "United Technologies' Activity-Based Accounting Is a Catalyst for Success." As Easy as ABC 18, p4. In the table, we have adjusted the nomenclature of United Technologies to match that used in this textbook. Specifically, United Technologies uses the term "structural-level activity" where we use "facility- level activity." and they shorten "product-sustaining-level activity to simply "sustaining-level activity:" Chapter 5 Activity-Based Costing and Management After studying the costs incurred over the past two years for one of its products, skeins lackson has selected four categories of selling costs and chosen cost d selling costs actually incurred during the past year and the cost drivers are as follows: of knitine drivers for each of these The Amount Cost Driver Cost Category $ 675,000 Boxes of yarn soild to retal stores 295.400 Catalogs distributed 105,000 Skeins sold through catalog Sales commissions Cost of catalog sales 60,000 Number of retail orders Credt and collection $1.135.400 Total selling costs The knitting yarn is sold to retail outlets in boxes, each containing 12 skeins of yarn. The sale of l 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: Catalog Sales Retail Sales Order Size 1-10 boxes 1-10 skeins Smal 11-20 skeins 11-20 boxes Medium Over 20 skeins Over 20 boxes Large An analysis of the previous year's records produced the following statistics. Order Size Total Large SmallMedium 225,000 45,000178,000 2,000 Retail sales in boxes (12 skeins per box) 175,000 52,00044,000 79,000 Catalog sales in skeins 6,000 3,100 2.415 485 Number of retail orders Catalogs distributed 254.300 211,300 125,200590.800 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 CMA, adapted)
