Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: 1 Price per unit
$60,000.00
2 Cost of goods sold
28,000.00
3 Gross profit per unit
$32,000.00
In addition, the company incurs selling and administrative expenses of $226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are:
1
Activity
Budgeted Activity Cost
Activity Base
2
Customer service
$31,500.00
Number of service requests
3
Project bidding
74,000.00
Number of bids
4
Engineering support
120,750.00
Number of customer design changes
5
Total costs
$226,250.00
Activity-base usage and unit volume information for the three customers is as follows:
Gough Industries
Breen Inc.
The Martin
Group
Total
Number of service requests 36 28 116 180
Number of bids 50 40 95 185
Number of customer design changes 18 35 108 161
Unit volume 30 16 4 50
Required:
1. Determine the activity rates for each of the three nonmanufacturing activity pools. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries.
2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries.
3. Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Colons (:) will automatically appear if required. Enter all amounts as positive numbers, except for a negative income from operations.
Labels
December 31
For the Year Ended December 31
Selling and administrative activities
Amount Descriptions
Breen Inc.
Cost of goods sold
Customer service
Engineering support
Gough Industries
Gross profit
Income from operations
Other income (expense)
Plantwide factory overhead rate
Product cost distortion
Project bidding
Revenues
The Martin Group
Total selling and administrative activities
1. Determine the activity rates for each of the three nonmanufacturing activity pools. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries.
1 per serv. req.
2 per bid
3 per design change
2. Determine the activity costs allocated to the three customers, using the activity rates in (1). Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries.
1 Activity Costs
2
3
4
3. Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (2). The reports should disclose the gross profit and income from operations associated with each customer. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Colons (:) will automatically appear if required. Enter all amounts as positive numbers, except for a negative income from operations.
Arctic Air Inc.

Customer Profitability Report
1
Gough Industries
Breen Inc.
The Martin Group
2
3
4
5
6
7
8
9
10