Allocating Selling and Adminlstrative Expenses using Activlty-Based Costing Shru

Question

Allocating Selling and Adminlstrative Expenses using Activlty-Based Costing Shrute Inc. manufactures oftice copiers, which are sold to retailers. The price and cost ot goods sold for each copier are as follows: Price Cost of goods sold Gross profit In addition, the company incurs selling and administrative expenses of $271,440. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Unlverse. These expenses are related to Its three major nonmanufacturing actlvitles: customer service, sales order processing, and advertising support. The advertising support is In the form of advertisements that are placed by Shrute Inc. to support the retailer's sale of Shrute copiers to consumers. The budgeted activity costs and activity bases associated with these activities are Activity Customer service Sales order processing Advertising support $690 per unit 110 $280 per unit Budgcted Activity Cost Activity Basc $37,180 25,760 208,500 $271,440 Number of service requests Number of sales orders Number of ads placed lotal activity cost Activity base usage and unit volume intormation for the three customers is as follows The Warehouse 50 260 20 670 Kosmo Co. Supply Universe Number of service requests Number of sales orders Number of ads placed Unit volume 10 110 20 670 200 550 110 670 Total 260 920 150 2,010

Explanation / Answer

Req 1: STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Customer service Requests 37,180 260 143.00 per request sales order processing sales orders 25,760 920 28.00 per order advertising support Ads placed 208,500 150 1,390.00 per ad Req 2: Activity cost Assigned: THE WAREHOUSE KOSMO CO. SUPPLY UNIVERSE Activity Rate ACTIVITY AMOUNT ACTIVITY AMOUNT ACTIVITY AMOUNT Customer service 143 50 7150 10 1430 200 28600 sales order processing 28 260 7280 110 3080 550 15400 advertising support 1390 20 27800 20 27800 110 152900 Total overheads 42230 32310 196900 Activity cost Warehouse 42230 Kosmo Co. 32310 Supply Universe 196900 Req 3: CUSTOMER PROFITABILITY REPORT Warehouse Kosmo Supply. Univ. Revenue (670 units @ 690) 462300 462300 462300 COGS (670 units @ 410) 274700 274700 274700 Gross profits 187600 187600 187600 Selling and Admin expense Customer Service 7150 1430 28600 Sales order processing 7280 3080 15400 Advertising 27800 27800 152900 Total selling and admin expense 42230 32310 196900 Net income /(loss) 145370 155290 -9300

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