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 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 $ 829,500 Boxes of yarn sold to retail stores Catalogs 313,000 Catalogs distributed Cost of catalog sales 149,600 Skeins sold through catalog Credit and collection 79,200 Number of retail orders Total selling costs $ 1,371,300 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 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 Medium Large Total Retail sales in boxes (12 skeins per box) 4,000 51,000 182,000 237,000 Catalog sales in skeins 83,000 56,000 48,000 187,000 Number of retail orders 525 2,615 4,060 7,200 Catalogs distributed 273,050 230,670 122,280 626,000 Questions: 1. What is Unit cost per order of a given size (small, medium, large)? 2. What is the credit and collection for each size (small, medium, large)? 3. Which options down below is correct and explian why? 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.

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 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 $ 829,500 Boxes of yarn sold to retail stores Catalogs 313,000 Catalogs distributed Cost of catalog sales 149,600 Skeins sold through catalog Credit and collection 79,200 Number of retail orders Total selling costs $ 1,371,300 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 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 Medium Large Total Retail sales in boxes (12 skeins per box) 4,000 51,000 182,000 237,000 Catalog sales in skeins 83,000 56,000 48,000 187,000 Number of retail orders 525 2,615 4,060 7,200 Catalogs distributed 273,050 230,670 122,280 626,000 Questions: 1. What is Unit cost per order of a given size (small, medium, large)? 2. What is the credit and collection for each size (small, medium, large)? 3. Which options down below is correct and explian why? 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.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter4: Activity-based Costing

Section: Chapter Questions

Problem 2CMA: The Chocolate Baker specializes in chocolate baked goods. The firm has long assessed the...

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Cost Category	Amount	Cost Driver
Sales commissions	$	829,500	Boxes of yarn sold to retail stores
Catalogs		313,000	Catalogs distributed
Cost of catalog sales		149,600	Skeins sold through catalog
Credit and collection		79,200	Number of retail orders
Total selling costs	$	1,371,300

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 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	Medium	Large	Total
Retail sales in boxes (12 skeins per box)	4,000	51,000	182,000	237,000
Catalog sales in skeins	83,000	56,000	48,000	187,000
Number of retail orders	525	2,615	4,060	7,200
Catalogs distributed	273,050	230,670	122,280	626,000

Questions:

1. What is Unit cost per order of a given size (small, medium, large)?

2. What is the credit and collection for each size (small, medium, large)?

3. Which options down below is correct and explian why?

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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