Shrute Inc. manufactures office copiers, which are sold to retailers. The price and cost of goods sold for each copier are as follows:
Price ..............$ 1,110 per unit
Cost of goods sold ....... 682
Gross profit ............ $ 428 per unit
In addition, the company incurs selling and administrative expenses of $ 414,030. 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- 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 activities.
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, 2014, 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).

Activity Customer service Sales order processing Advertising support Budgeted Activity Cost Activity Base 76,860 25,920 311,250 $414,030 Number of service requests Number of sales orders Number of ads placed Total activity cost Supply Universe The Kosmo Co. 340 640 180 810 Total Number of service requests Number of sales orders Number of ads placed Unit volume 62 300 25 810 25 140 427 1,080 249 2,430 810