Question

Apps Ch 18 Exercises eBook Calculator Print Item Construct and interpret a Product Profitability Report, Allocating Selling and Administrative Expenses Naper Inc. manufactures power equipment. Naper has two primary products-generators and air compressors. The following report was prepared by the controller for Naper's senior marketing management for the year ended December 31: Air Compressors Total Revenue Generators $1,139,160 854,370 Cost of goods sold $1,611,400 1,208,550 $102,850 $2,750,560 2,062,920 $687,640 Gross profit $284,790 Selling and administrative expenses 147,040 Income from operations $540,600 The marketing management team was concerned that the selling and administrative expenses were not traced to the products. Marketing management believed that some products consumed larger amounts of selling and administrative expense than did other products. To verify this, the controller was asked to prepare a complete product profitability report, using activity based costing. The controller determined that selling and administrative expenses consisted of two activities sales order processing and post-sale customer service. The controller was able to determine the activity base and activity rate for each activity, as shown below. Activity Activity Base Activity Rate Sales order processing Sales orders 550 per sales order Post-sale customer service Service requests $190 per customer service request The controller determined the following activity-base usage infomation about each products Generators Air Compressors 8:35 PM

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Answer 1

• Problem (b) solution | Product Bofitabilty Report For the year ended Dec. 31 particulars. TN Products Crenerators Air- I Total Compressor Revenues $ 1,139, 160 $1,611, 900 $2,750,560 Cost of goods 854,370 1208,550 2062920 sold Gross Profit 1 $ 284, 790 $ 402,850 $687, 640 CAI $34,950 $53,750 Sales order Brod Processing $ 18,800 Post - Sales Customer service $ 15,390 $ 77,900 $ 93,290 zu 190 4 112,850 1 147,040 Total selling and admin exp. I 250, 600 1290,000 1540 600 Income from operation CA-B)

Problem - (a) solution Deti smination of activity lest of each Boduct Products Sales order post-sales Processing cost Customer Ext Service Cost Crenerators $ 18, 800 $ 15,390 (376* $50) (81X $190) Air Compressor $ 34,950 (699X $50) I (410x $190) $77,900 To tal $93,290 Total overheads selling and admingbative = $53750 + $ 93,290 2 $ 147,040

Patio I henerator Air Compressor Gross Profit (as a % to sales) 25% 25% 284790 Xico (402850 xico 1139 160 16 11 400 Income from operation Cas a % to sales o 250600 113916o .XICO 290.ooo xro 16114co