Question

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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  • CreatedMarch 26, 2014
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