Ex 5-35 (Algo) ABC; Selling Costs (LO 5-2, 5-4) Textile Crafts Company (TCC) sells craft kits and supplies to retail outlets and through online sites such as Etsy.com. Some of the items are manufactured by TCC, 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, TCC 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 Sales commissions Pay-per-click/Search engine optimization Cost of online sales Credit and collection Total selling costs 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 online sales. The cost of online sales includes technology infrastructure costs and the wages of personnel who process the online 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 Small 1 to 10 Online Sales 1 to 10 skeins 11 to 20 skeins Over 20 skeins Retail Sales boxes 11 to 20 boxes Over 20 boxes Medium Large An analysis of the previous year's records produced the following statistics. Items Retail sales boxes (12 skeins per box) Online sales, skeins Number of retail orders Number of online leads Cost Driver Amount $ 864,000 Boxes of yarn sold to retail stores 385,850 Number of online leads 114,000 Skeins sold online 82,500 Number of retail orders $1,446,350 Small 4,500 84,000 535 351,830 Order Size Medium Large 183,000 49,000 52,500 57,000 2,665 4,300 319,370 100,500 Total 240,000 190,000 7,500 771,700

Ex 5-35 (Algo) ABC; Selling Costs (LO 5-2, 5-4) Textile Crafts Company (TCC) sells craft kits and supplies to retail outlets and through online sites such as Etsy.com. Some of the items are manufactured by TCC, 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, TCC 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 Sales commissions Pay-per-click/Search engine optimization Cost of online sales Credit and collection Total selling costs 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 online sales. The cost of online sales includes technology infrastructure costs and the wages of personnel who process the online 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 Small 1 to 10 Online Sales 1 to 10 skeins 11 to 20 skeins Over 20 skeins Retail Sales boxes 11 to 20 boxes Over 20 boxes Medium Large An analysis of the previous year's records produced the following statistics. Items Retail sales boxes (12 skeins per box) Online sales, skeins Number of retail orders Number of online leads Cost Driver Amount $ 864,000 Boxes of yarn sold to retail stores 385,850 Number of online leads 114,000 Skeins sold online 82,500 Number of retail orders $1,446,350 Small 4,500 84,000 535 351,830 Order Size Medium Large 183,000 49,000 52,500 57,000 2,665 4,300 319,370 100,500 Total 240,000 190,000 7,500 771,700

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter2: Basic Managerial Accounting Concepts

Section: Chapter Questions

Problem 36E: Products versus Services, Cost Assignment Holmes Company produces wooden playhouses. When a customer...

See similar textbooks