Volt-Gear, Inc., manufactures power equipment. Volt-Gear has two primary products-generators and air compressors. The following report was prepared by the controller for Volt-Gear senior marketing management:

The marketing management team was concerned that the selling 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 that did other products. To verify this, the controller was asked to prepare a complete product profit ability report, using activity-based costing.The controller determine that selling and administrative expenses consisted of two activities: sales order processing and past-sale customer service. The controller was able to determine the activity base and activity rate for each activity, as shown below.

The controller determined the following activity-base usage information about each product:

(a) Determine the activity cost of each product for sales order processing and post-sale customer service activities.(b) Use the information in (a) to prepare a complete product profitability report dated for the year ended December 31, 2012. Calculate the gross profit to sales and the income from operation to sales percentages for each product.(c) Interpret the profitability report. How should management respond to thereport?

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Air Compressors Total Generators $2,050,000 1,500,000 $ 550,000 235,000 Revenue Cost of goods sold Gross profit Selling and administrative expenses Income from operations $800,000 $1,250,000 900,000 600,000 $ 350,000 $200,000 $ 315,000