Arctic Air Inc. manufactures cooling units for commercial buildings. The price a
ID: 2537595 • Letter: A
Question
Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows:
1
Price per unit
$60,000.00
2
Cost of goods sold
28,000.00
3
Gross profit per unit
$32,000.00
In addition, the company incurs selling and administrative expenses of $226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are:
1
Activity
Budgeted Activity Cost
Activity Base
2
Customer service
$31,500.00
Number of service requests
3
Project bidding
74,000.00
Number of bids
4
Engineering support
120,750.00
Number of customer design changes
5
Total costs
$226,250.00
Activity-base usage and unit volume information for the three customers is as follows:
Gough Industries
Breen Inc.
The Martin
Group
Total
1. Determine the activity rates for each of the three nonmanufacturing activity pools. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries.
1
per serv. req.
2
per bid
3
per design change
2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries.
1
Activity Costs
2
3
4
3. Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Colons (:) will automatically appear if required. Enter all amounts as positive numbers, except for a negative income from operations.
Arctic Air Inc.
Customer Profitability Report
1
Gough Industries
Breen Inc.
The Martin Group
2
3
4
5
6
7
8
9
10
1
Price per unit
$60,000.00
2
Cost of goods sold
28,000.00
3
Gross profit per unit
$32,000.00
Explanation / Answer
1.
Working:
Customer service = $31500/180 = $175
Project bidding = $74000/185 = $400
Engineering support = $120750/161 = $750
2.
Working:
3.
1 Customer service $175 per serv. req. 2 Project bidding $400 per bid 3 Engineering support $750 per design changeRelated Questions
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