Allocating Selling and Administrative Expenses usingActivity-Based Costing
Shrute Inc. manufactures office copiers, which are sold toretailers. The price and cost of goods sold for each copier are asfollows:
| Price | $700 | per unit |
| Cost of goods sold | 420 | |
| Gross profit | $280 | per unit |
In addition, the company incurs selling and administrativeexpenses of $270,510. The company wishes to assign these costs toits three major retail customers, The Warehouse, Kosmo Co., andSupply Universe. These expenses are related to its three majornonmanufacturing activities: customer service, sales orderprocessing, and advertising support. The advertising support is inthe form of advertisements that are placed by Shrute Inc. tosupport the retailer's sale of Shrute copiers to consumers. Thebudgeted activity costs and activity bases associated with theseactivities are:
| Activity | Budgeted Activity Cost | Activity Base |
| Customer service | | $42,050 | | Number of service requests |
| Sales order processing | | 26,860 | | Number of sales orders |
| Advertising support | | 201,600 | | Number of ads placed |
| Total activity cost | | $270,510 | | |
Activity-base usage and unit volume information for the threecustomers is as follows:
| The Warehouse | Kosmo Co. | Supply Universe | Total |
| Number of service requests | 60 | | | 10 | | 220 | | 290 | |
| Number of sales orders | 220 | | | 90 | | 480 | | 790 | |
| Number of ads placed | 20 | | | 10 | | 110 | | 140 | |
| Unit volume | 610 | | | 610 | | 610 | | 1,830 | |
Required:
1. Determine the activity rates for each of thethree nonmanufacturing activities. Round to the nearest wholedollar.
| Activity Rate | |
| Customer Service | $ | per serv. req. |
| Sales Order Processing | $ | per bid |
| Advertising Support | $ | per customer design change |
2. Determine the activity costs allocated tothe three customers, using the activity rates in (1).
| Activity Costs |
| The Warehouse | $ |
| Kosmo Co. | $ |
| Supply Universe | $ |
3. Construct customer profitability reports forthe three customers, dated for the year ended December 31, 2016,using the activity costs in (2). The reports should disclose thegross profit and income from operations associated with eachcustomer. Enter all amounts as positive numbers, except for anegative income from operations.
| Shrute Inc. |
| Customer Profitability Report |
| For the Year Ended December 31 |
| The Warehouse | Kosmo Co. | Supply Universe |
| Revenues | $ | $ | $ |
| Cost of goods sold | | | |
| Gross profit | $ | $ | $ |
| Selling and administrative activities: | | | |
| Customer service | $ | $ | $ |
| Sales order processing | | | |
| Advertising support | | | |
| Total selling and administrative activities | $ | | |
| Income (loss) from operations | $ | $ | $ |
