ABC; Selling Costs
Redwood Company sells craft kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Redwood, 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, Redwood 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 yam. Jackson has selected four categories of selling costs and chosen Lost 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. | $675,000 | Boxes of yam sold to retail stores |
Catalogs. | 295,400 | Catalogs distributed |
Cost of catalogs ales. | 105,000 | Skeins sold through catalog |
Credit and collection. | 60,000 | Number of retail orders |
Total selling costs | $1,1 35,400 |
The knitting yam is sold to retail outlets in boxes, each containing 12 skeins of yam. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales. The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog 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 | Catalog Sales | Retail Sales |
Small | 1-10 skeins | 1-10 boxes |
Medium | 11 - 20 skeins | 11-20 boxes |
Large | Over 20 skeins | Over 20 boxes |
An analysis of the previous year’s records produced the following statistics.
| Order Size | |||
Small | M edium | La rge | Total | |
Retail sales inboxes (12 skeins per box) | 2,000 | 45,000 | 178,000 | 225,000 |
Catalog sales in skeins. | 79,000 | 52,000 | 44,000 | 175,000 |
Number of retail orders. | 485 | 2,415 | 3,100 | 6,000 |
Catalogs distributed | 254,300 | 21 1,300 | 125,200 | 590,800 |
Required:
1. Prepare a schedule showing Redwood Company's total selling cost for each order size and the per skein selling cost within each order size.
2. Explain how the analysis of the selling costs for skeins of knitting yarn is likely to impact future pricing and product decisions at Redwood Company.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.