Preparing an Action Analysis Report
Pro Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based costing to evaluate the profitability of serving its customers. This analysis is based on categorizing the company’s costs as follow, using the ease of adjustment color coding scheme described in Appendix 7A:
Direct materials | Green |
Direct labor | Yellow |
Indirect labor | Yellow |
Factory equipment depreciation | Red |
Factory administration | Red |
Selling and administrative wages and salaries | Red |
Selling and administrative depreciation | Red |
Marketing expenses | Yellow |
Management would like to evaluate the profitability of a particular customer-the Peregrine Golf Club of Eagle. Colorado. Over the last 12 months this customer submitted one order for 80 golf clubs that had to be produced in two batches due to differences in product labeling requested by the customer. Summary data concerning the order appear below:
Number of clubs | 80 |
Number of orders | 1 |
Number of batches | 2 |
Direct labor-hours per club | 0.3 |
Selling price per club | S48.00 |
Direct materials cost per club | S25.40 |
Direct labor rate per hour | S21.50 |
A cost analyst working in the controller’s office at the company has already produced the action analysis cost matrix for the Peregrine Golf Club that follows:
Action Analysis Cost Matrix for Peregrine Golf Club
| Activity Cost Pools | ||||
| Volume | Batch Processing | Order Processing | Customer -Service | Total |
Activity | 24direct labor-hours | 2batches | 1order | 1customer |
|
Manufacturing overhead: | |||||
Indirect labor | $ 33.60 | $51.60 | $ 4.80 | $ 0.00 | $ 90.00 |
Factory equipment depreciation | 105.60 | 0.80 | 0.00 | 0.00 | 106.40 |
Factory administration | 16.80 | 0.60 | 14.00 | 231.00 | 262.40 |
Selling and administrative overhead: Wages and salaries | 12.00 | 0.00 | 38.00 | 386.00 | 436.00 |
Depreciation | 0.00 | 0.00 | 5.00 | 25.00 | 30.00 |
Marketing expenses | 115.20 | 0.00 | 57.00 | 368.00 | 540.20 |
Total | $283.20 | $53.00 | $118.80 | $1,010.00 | $1,465.00 |
Required:
Prepare an action analysis report showing the profitability of the Peregrine Golf Club. Include direct material sand direct labor costs in the report. Use Exhibit 7A-5 as a guide for organizing the report.
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