Z-Rox Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows:

Price .........$680 per unit

Cost of goods sold ......410

Gross profit ........$ 270 per unit

In addition, the company incurs selling and administrative expenses of $254,880. The company wishes to assign these costs to its three major retail customers, Office Warehouse, General Office Supply, and Office 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 Z-Rox Inc. to support the retailer's sale of Z-Rox copiers to consumers. The activity cost pool and activity bases associated with these activities are:

Activity-base usage and unit volume information for the three customers is as follows:

Instructions
1. Determine the activity rates for each of the three nonmanufacturing activity pools.
2. Determine the activity costs allocated to the three customers, using the activity rates in (1).
3. Construct customer profitability reports for the three customers, dated for the year ended December 31, 2010, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer.
4. Provide recommendations to management, based on the profitability reports in(3).

Transcribed Image Text:

Activity Cost Pool Activity Customer service Sales order processing Advertising support Activity Base S 34,800 24,080 196,000 Number of service requests Number of sales orders Number of ads placed Total activity cost Office Warehouse General Office Supply 10 100 Office Universe Total Number of service requests Number of sales orders Number of ads placed Unit volune 50 240 20 650 180 520 105 650 240 860 140 1,950 650