Problem:
Jog Road Company's cost system assigns MSDA expenses to customers using a rate of 33% of sales revenue. The new CFO has discovered that Jog Roads's customers differ greatly in their ordering patterns and interaction with the company's sales force. Because the CFO believes Jog Road's cost system does not accurately assign MSDA expenses to customers, he developed an ABC system and gathered the following information.
Austin Brooke
Sales $860,000 $790,000
Cost of Goods Sold 415,000 380,000
Sales representative travel 10,000 83,000
Service customers 37,000 229,000
Handle customer orders 9,000 26,000
Ship to customers 48,000 150,000
1. Using the current cost system's approach of assigning MSDA expenses to customers using a rate of 33% of sales revenue, determine the operating profit associated with Austin and with Brooke.
Austin ___________________
Brooke ___________________
2. Using the activity-based costing information provided, determine the operating profit associated with Austin and with Brooke.
Austin ___________________
Brooke ___________________