Tetra Company\'s cost system assigns marketing, distribution,and selling expense

Question

Tetra Company's cost system assigns marketing, distribution,and selling expenses to customers using a rate of 33% of salesrevenue. The new controller has discovered that Tetra'scustomers differ greatly in their ordering patterns and interactionwith Tetra's sales force. Because the controller believesTetra's cost system does not accurately assign marketing,distribution, and selling expenses to customers, she developed anactivity-based costing system to assign these expenses tocustomers. She then identified the following marketingdistribution, and selling costs for two customers, Ashton andBrown:                                                           Ashton                   Brown Slaes representativetravel                    9,000                     42,000 Servicecustomers                               15,000                    110,000 Handle customerorders                         1,000                    12,000 Ship tocustomers                                  24,000                   72,000 The following additional information is available:                                                          Ashton                   Brown Sales                                             430,000                   350,000 Cost of GoodsSold                        220,000                   155,000 a. Using the current cost system's approach of assigningmarketing, distribution, and selling expenses to customers usng arate of 33% of sales revenue, determine the operating profitassociated with Ashton and with Brown. b. Using the activity-based costing informationprovided, determine the operating profit associated with Ashton andwith Brown. c. Which of the two methods produces more accurateassignments of marketing, distribution, and selling expenses tocustomers. Explain. Tetra Company's cost system assigns marketing, distribution,and selling expenses to customers using a rate of 33% of salesrevenue. The new controller has discovered that Tetra'scustomers differ greatly in their ordering patterns and interactionwith Tetra's sales force. Because the controller believesTetra's cost system does not accurately assign marketing,distribution, and selling expenses to customers, she developed anactivity-based costing system to assign these expenses tocustomers. She then identified the following marketingdistribution, and selling costs for two customers, Ashton andBrown:                                                           Ashton                   Brown Slaes representativetravel                    9,000                     42,000 Servicecustomers                               15,000                    110,000 Handle customerorders                         1,000                    12,000 Ship tocustomers                                  24,000                   72,000 The following additional information is available:                                                          Ashton                   Brown Sales                                             430,000                   350,000 Cost of GoodsSold                        220,000                   155,000 a. Using the current cost system's approach of assigningmarketing, distribution, and selling expenses to customers usng arate of 33% of sales revenue, determine the operating profitassociated with Ashton and with Brown. b. Using the activity-based costing informationprovided, determine the operating profit associated with Ashton andwith Brown. c. Which of the two methods produces more accurateassignments of marketing, distribution, and selling expenses tocustomers. Explain.

Explanation / Answer

$9,000

$42,000

$15,000

$110,000

$1,000

$12,000

$24,000

$72,000

$49,000

$236,000

$161,000

-$41,000

Ashton Brown Sales Revenue $430,000 $350,000 Cost of Goods Sold $220,000 $155,000 Gross Profit $210,000 $195,000 Marketing, distribution and Selling expenses 33% ofsales $141,900 $115,500 Operating Profit $68,100 $79,500

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.