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4-27 Assigning marketing, distribution, and selling expenses to customers

4-27 Assigning marketing, distribution, and selling expenses to customers
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MANAGEMENT ACCOUNTING
Management Accounting (Atkinson), 5th Edition
4-27 (Assigning marketing, distribution, and selling expenses to customers) Tetra Company’s cost system assigns marketing, distribution, and selling expenses to customers using a rate of 33% of sales revenue. The new controller has discovered that Tetra’s customers differ greatly in their ordering patters and interaction with Tetra’s sales force. Because the controller believes Tetra’s cost system does not accurately assign marketing, distribution, and selling expenses to customers, she developed an activity-based costing system to assign these expenses to customers. She then identified the following marketing, distribution, and selling costs for two customers, Ashton and Brown: ASHTON BROWN Sales representative $9,000 $42,000 Service customers 15,000 110,000 Handle customer orders 1,000 12,000 Ship to customers 24,000 72,000 The following additional information is available: ASHTON BROWN Sales $430,000 $350,000 Cost of goods sold 220,000 155,000 a. Using the current cost system’s approach of assigning marketing, distribution, and selling expenses to customers using a rate of 33% of sales revenue, determines the operating profit associated with Ashton and with Brown. b. Using the activity-based costing information provided, determine the operating profit associated with Ashton and with Brown. c. Which of the two methods produced more accurate assignments of marketing, distribution, and selling expenses to customers? Explain.

 

FILE: MS WORD

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