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Belinda, sales manager at Salem Products, helped set the company$$s pricing strategy. Salem

had well$-$established relationships with suppliers and purchased its three products at very

affordable amounts.

Hat Jacket Shoes

Purchase price$/$unit $3\mathrm{.}408\mathrm{.}9012\mathrm{.}50$

Qty purchased$/$sold $15,00012,00020,000$

The company$$s selling price policy was to add a markup of $160\%$ of product costs to each

product. That practice had served the company well in the past, allowing it to sell large volumes

of each product while earning solid profitability for the company.

However, company profits were down considerably this past year, despite strong sales volumes

for all three products. Belinda and all managers were concerned and confused. Product costs

hadn$$t changed, so selling prices hadn't changed, either. Something must be going on with the

other operating expenses. Belinda called the accounting supervisor for information on operating

expenses and a best estimate on cost drivers for each. She wanted to see if the selling price for

each product was even covering each item$$s full cost. Here is the resulting information.

Qty of Cost Driver used

Operating Exp. Total cost Cost driver Hat Jacket Shoes

Ordering $50,000$ Orders $250250500$

Receiving $70,000$ Receiving hours $500800700$

Shipping $80,000$ Shipments sent $100010002000$

Administrative $120,000$ employees $578$

$1.$ Calculate the selling price and gross margin for each product

Hat Jacket Shoes

Selling Price

Gross Margin

$2.$ Calculate an activity rate for each operating expense using cost driver information

provided and allocate to each product line to determine full cost per unit for each

product.

Rate Hat Jacket Shoes

Ordering

Receiving

Shipping

Administrative

Total

Full Cost$/$ unit

$3.$

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