Allocating Selling and Administrative Expenses using Activity-Based Costing Requ

Question

Allocating Selling and Administrative Expenses using Activity-Based Costing

Required:

1. Determine the activity rates for each of the three nonmanufacturing activities. Round to the nearest whole dollar.

2. Determine the activity costs allocated to the three customers, using the activity rates in (1).

3. Construct customer profitability reports for the three customers, dated for the year ended December 31, 2014, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer. Enter all amounts as positive numbers.

Shrute Inc.

Customer Profitability Report

For the Year Ended December 31, 2014

The Warehouse

Kosmo Co.

Supply Universe

Revenues

$  

$  

$  

Less cost of goods sold

  

  

  

Gross profit

$  

$  

$  

Less selling and administrative activities:

Customer service cost

$  

$  

$  

Sales order processing cost

  

  

  

Advertising support cost

  

  

  

$  

$  

$  

Income from operations

$  

$  

$  

Activity Rate Customer Service $ per serv. req. Sales Order Processing $ per sls. order Advertising Support $ per ad

Explanation / Answer

1. Determination of activity rates:

2. Determination of customer wise activity cost

Activity Cost

Customer Service

Activity Cost

Sales order processing

Activity Cost

Advertising

Support

Total

Cost

3. Customer Profitability Report

Activity Cost Cost Driver No. Activity Rate Customer Service 76860 No. of service requests 427 180 Sales Order Processing 25920 No. of sales orders 1080 24 Advertising Support 311250 No. of ads placed 249 1250

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