Problem:
Redwood Company sells craft kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Redwood, while others are purchased for resale. For the products it manufactures, the company currently bases its selling prices on a product-costing system that accounts for direct material, direct labor, and the associated overhead costs. In addition to these product costs, Redwood incurs substantial selling costs, and Roger Jackson, controller, has suggested that these selling costs should be included in the product pricing structure.
After studying the costs incurred over the past two years for one of its products, skeins of knitting yarn, Jackson has selected four categories of selling costs and chosen cost drivers for each of these costs. The selling costs actually incurred during the past year and the cost drivers are as follows:
Cost Category Amount Cost Driver
Sales commissions $ 675,000 Boxes of yarn sold to retail stores
Catalogs 295,400 Catalogs distributed
Cost of catalog sales 105,000 Skeins sold through catalog
Credit and collection 60,000 Number of retail orders
Total selling costs $ 1,135,400
The knitting yarn is sold to retail outlets in boxes, each containing 12 skeins of yarn. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales. The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog orders. Jackson believes that the selling costs vary significantly with the size of the order. Order sizes are divided into three categories as follows:
Order Size Catalog Sales Retail Sales
Small 1 - 10 skeins 1 - 10 boxes
Medium 11 - 20 skeins 11 - 20 boxes
Large Over 20 skeins Over 20 boxes
An analysis of the previous year's records produced the following statistics.
Order Size
Small Medium Large Total
Retail sales in boxes (12 skeins per box) 2,000 45,000 178,000 225,000
Catalog sales in skeins 79,000 52,000 44,000 175,000
Number of retail orders 485 2,415 3,100 6,000
Catalogs distributed 254,300 211,300 125,200 590,800
Prepare a schedule showing Redwood Company's total selling cost for each order size and the per-skein selling cost within each order size. (Round unit cost per order to 2 decimal places. Omit the "$" sign in your response.)
REDWOOD COMPANY
COMPUTATION OF SELLING COSTS
BY ORDER SIZE AND PER SKEIN WITHIN EACH ORDER SIZE
Order Size
Small Medium Large Total
Sales commissions $ $ $ $
Catalogs
Costs of catalog sales
Credit and collection
Total cost for all orders $ $ $ $
Units (skeins) sold
Unit cost per order $ $ $.