Allocating Selling and Administrative Expenses using Activity-Based Costing Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows: Price $720 per unit Cost of goods sold (430) Gross profit $290 per unit In addition, the company incurs selling and administrative expenses of $229,820. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related to its three major nonmanufacturing activities: customer service, sales order processing, and advertising support. The advertising support is in the form of advertisements that are placed by Shrute Inc. to support the retailer's sale of Shrute copiers to consumers. The budgeted activity costs and activity bases associated with these activities are: Activity Budgeted Activity Cost Activity Base Customer service $33,000 Number of service requests Sales order processing 22,620 Number of sales orders Advertising support 174,200 Number of ads placed Total activity cost $229,820 Activity-base usage and unit volume information for the three customers is as follows: The Warehouse Kosmo Co. Supply Universe Total Number of service requests 50 10 160 220 Number of sales orders 240 100 530 870 Number of ads placed 20 10 100 130 Unit volume 690 690 690 2070
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Allocating Selling and Administrative Expenses using Activity-Based Costing
Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows:
| Price | $720 | per unit |
| Cost of goods sold | (430) | |
| Gross profit | $290 | per unit |
In addition, the company incurs selling and administrative expenses of $229,820. The company wishes to assign these costs to its three major retail customers, The Warehouse, Kosmo Co., and Supply Universe. These expenses are related to its three major nonmanufacturing activities: customer service, sales order processing, and advertising support. The advertising support is in the form of advertisements that are placed by Shrute Inc. to support the retailer's sale of Shrute copiers to consumers. The budgeted activity costs and activity bases associated with these activities are:
| Activity | Budgeted Activity Cost | Activity Base | |||
| Customer service | $33,000 | Number of service requests | |||
| Sales order processing | 22,620 | Number of sales orders | |||
| Advertising support | 174,200 | Number of ads placed | |||
| Total activity cost | $229,820 |
Activity-base usage and unit volume information for the three customers is as follows:
| The Warehouse | Kosmo Co. | Supply Universe | Total | ||||||
| Number of service requests | 50 | 10 | 160 | 220 | |||||
| Number of sales orders | 240 | 100 | 530 | 870 | |||||
| Number of ads placed | 20 | 10 | 100 | 130 | |||||
| Unit volume | 690 | 690 | 690 | 2070 |
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