Star Kleymeyer, owner of Star Bakery, wants to know the profitability of each of her bakery€™s customer groups. She is especially interested in the State Institutions customer group, which is one of the company€™s largest. Currently, the bakery is selling doughnuts and snack foods to ten state institutions in three states. The controller has prepared the following income statement for the State Institutions customer group:
Start Bakery
Income Statement for State institutions Customer Group
For the Year Ended December 31
Sales ($5 per case × 50,000 cases) ................ $250,000
Cost of goods sold ($3.50 per case × 50,000 cases) ........... 175,000
Gross margin ......................... $ 75,000
Less: Selling and administrative activity costs (see schedule below) ... 94,750
Operating income (loss) contributed by State Institutions customer group.$ (19,750)

The controller has also provided budget information about selling and administrative activities for the State Institutions customer group. For this year, the planned activity cost rates and the annual cost driver levels for each selling and administrative activity are as follows:

You have been called in as a consultant on the State Institutions customer group.
1. Calculate the planned activity cost for each activity.
2. Calculate the differences between the planned activity cost and the State Institutions customer group€™s activity costs for this year.
3. From your evaluation of the differences calculated in 2 and your review of the income statement, identify the non-value-adding activities and state which selling and administrative activities should be examined.
4. What actions might the company take to reduce the costs of non-value-adding selling and administrativeactivities?

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Schedule of Selling and Administrative Activity Costs Activity Make sales calls Prepare sales orders $10 per sales order Handle inquiries Ship products Process invoices Process credits Process billings and collections Total selling and administrative activity costs Activity Cost Rt $60 per sales call Actual Cost Driver Level Activity Cost S5 per minute $1 per case sold $20 per invoice $20 per notice 60 sales calls 900 sales orders 1,000 minutes 50,000 cases 950 invoices 40 notices 3,600 9,000 5,000 50,000 19,000 800 $7 per billing 1,050 biings 7350 $94,750 Activity Make sales calls Prepare sales orders Handle inquiries Ship products Process invoices Process credits Process billings and collections Planned Activity Cost Rate $60 per sales call $10 per sales order $5.10 per minute $0.60 per case sold $1 per invoice $10 per notice $4 per bilng Planned Annual Cost Driver Level 59 sales calls 850 sales orders 1,000 minutes 50,000 cases 500 invoices 5 notices 600 billings