Sandee Star, the 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:

The controller has also provided budgeted 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 administrative activities?

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Star Bakery Income Statement for State Institutions Customer Group For the Year Ended December 31 Sales ($5 per case x 50,000 cases) Cost of goods sold ($3.50 per case x 50,000 cases) Gross margin Less: Selling and administrative activity costs Operating income (loss) contributed by State Institutions $250,000 175,000 75,000 94,750 customer group S 19,750) Cost Rate Actual Cost Driver Level Cost 3,600 9,000 5,000 50,000 19,000 800 $60 per sales call Make sales calls Prepare sales orders Handle inquiries Ship products Process invoices Process credits Process billings and 60 sales calls 900 sales orders 1,000 minutes 0,000 cases 950 invoices 40 notices 10 per sales order 5 per minute l per case sold 20 per invoice 20 per notice 1,050 billings 7 per billing Total selling and administrative activity costs 7350 $94,750 collections Planned Activity Activity Make sales calls Prepare sales orders Handle inquiries Ship products Process invoices Process credits Process billings and Planned Annual Cost Driver Level 59 sales calls 850 sales orders 1,000 minutes 50,000 cases 500 invoices 5 notices 600 billingts Cost Rate $60 per sales call 10 per sales order 5.10 per minute 0.60 per case sold 1 per invoice 10 per norioe 4 per billing collections