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Ex $5-35($Algo$)$ ABC; Selling Costs $($LO $5-2,5-4)$

Textile Crafts Company $($TCC$)$ sells craft kits and supplies to retail outlets and through online sites such as Etsy.com. Some of the items are manufactured by TCC$,$ while others are purchased for resale. For the products it manufactures, the company currently bases its selling prices on a product$-$costing system that accounts for direct material, direct labor, and the associated overhead costs. In addition to these product costs, TCC incurs substantial selling costs, and Roger Jackson, controller, has suggested that these selling costs should be included in the product pricing structure.

After studying the costs incurred over the past two years for one of its products, skeins of knitting yarn, Jackson has selected four categories of selling costs and chosen cost drivers for each of these costs. The selling costs actually incurred during the past year and the cost drivers are as follows:

Cost Category Amount Cost Driver

Sales commissions $ $537,000$ Boxes of yarn sold to retail stores

Pay$-$per$-$click$/$Search engine optimization $345,900$ Number of online leads

Cost of online sales $200,700$ Skeins sold online

Credit and collection $97,200$ Number of retail orders

Total selling costs $ $1,180,800$

The knitting yarn is sold to retail outlets in boxes, each containing $12$ skeins of yarn. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on online sales. The cost of online sales includes technology infrastructure costs and the wages of personnel who process the online orders. Jackson believes that the selling costs vary significantly with the size of the order. Order sizes are divided into three categories as follows:

Order Size Online Sales Retail Sales

Small $1$ to $10$ skeins $1$ to $10$ boxes

Medium $11$ to $20$ skeins $11$ to $20$ boxes

Large Over $20$ skeins Over $20$ boxes

An analysis of the previous year$$s records produced the following statistics.

Items Order Size Total

Small Medium Large

Retail sales boxes $(12$ skeins per box$)5,50069,000194,000268,500$

Online sales, skeins $95,00068,00060,000223,000$

Number of retail orders $6453,2156,94010,800$

Number of online leads $246,190260,530185,080691,800$

Required:

Prepare a schedule showing TCC$$s total selling cost for each order size and the per$-$skein selling cost within each order size.

Note: Round your intermediate calculations and unit cost per order to $2$ decimal places.

An analysis of selling costs shows:

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Management may want to consider offering discounts for large orders.

Small orders are preferable to medium sized orders.

Large orders are preferable to medium sized orders.

Marketing should be focused on small sized orders.

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