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Volt-Gear, Inc., manufactures power equipment. Volt-Gear has two primary productsgenerators and air compressors. The following report was prepared by the controller for Volt-Gear senior marketing
Volt-Gear, Inc., manufactures power equipment. Volt-Gear has two primary productsgenerators and air compressors. The following report was prepared by the controller for Volt-Gear senior marketing management for the year ended Dec. 31, 2014:
Total Generators Air Compressors $2,123,680 1,592,760 $530,920 Revenue Cost of goods sold Gross profit Selling and administrative expenses Income from operations The marketing management team was concerned that the selling and administrative expenses were not traced to the products. Marketing management believed that some products consumed larger amounts of selling and administrative expense $2,001,250 1,601,000 $400,250 $4,124,930 3,193,760 $931,170 196,770 $734,400 than did other products. To verify this, the controller was asked to prepare a complete product profitability report, using activity-based costing The controller determined that selling and administrative expenses consisted of two activities: sales order processing and post-sale customer service. The controller was able to determine the activity base and activity rate for each activity, as shown below Activity Sales order processing Post-sale customer service Service requests $200 per customer service request The controller determined the following activity-base usage information about each product: Activity Base Activity Rate Sales orders $90 per sales order Generators Air Compressors Number of sales orders Number of service requests a. Determine the activity cost of each product for sales order processing and post-sale customer service activities 365 768 398 Sales Order Processing Activities Cost Post-sale Customer Service Activities Cost Generators Air Compressors TotalStep by Step Solution
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