Solution-Evaluating Selling and Administrative Cost

Evaluating Selling and Administrative Cost Allocations

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Reference no: EM132690692

Problem - Evaluating Selling and Administrative Cost Allocations

Empire Furniture Company has two major product lines with the following characteristics:

Commercial office furniture: Few large orders, little advertising support, shipments in full truckloads, and low handling complexity

Home office furniture: Many small orders, large advertising support, shipments in partial truckloads, and high handling complexity

The company produced the following profitability report for management:

Office Comfort Furniture Company Product Profitability Report For the Year Ended December 31, 2012
	Commercial Office Furniture	Home Office Furniture	Total
Revenue	$4,000,000	$2,000,000	$6,000,000
Cost of goods sold	1,500,000	700,000	2,200,000
Gross profit	$2,500,000	$1,300,000	$3,800,000
Selling and administrative expenses	1,200,000	600,000	1,800,000
Income from operations	$1,300,000	$ 700,000	$2,000,000

The selling and administrative expenses are allocated to the products on the basis of relative sales dollars.

Evaluate the accuracy of this report and recommend an alternative approach.

Reference no: EM132690692

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Evaluating Selling and Administrative Cost Allocations

Reference no: EM132690692

Reference no: EM132690692

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