Friday, 26 September 2014

Pro Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based costing to evaluate the profitability of serving its customers. This analysis is based on categorizing the company’s costs as follows, using the ease of adjustment color coding scheme.

Pro Golf Corporation produces private label golf clubs for pro shops throughout North America. The company uses activity-based costing to evaluate the profitability of serving its customers. This analysis is based on categorizing the company’s costs as follows, using the ease of adjustment color coding scheme.
   
  Ease of
Adjustment Code
  Direct materials              Green
  Direct labor              Yellow
  Indirect labor              Yellow
  Factory equipment depreciation              Red
  Factory administration              Red
  Selling and administrative wages and salaries              Red
  Selling and administrative depreciation              Red
  Marketing expenses              Yellow

   
      Management would like to evaluate the profitability of a particular customer—the Peregrine Golf Club of Eagle, Colorado. Over the last 12 months this customer submitted 2 order for 90 golf clubs that had to be produced in 2 batches due to differences in product labeling requested by the customer. Summary data concerning the order appear below:
   
   
  Number of clubs   90  
  Number of orders   2  
  Number of batches   2  
  Direct labor-hours per club   .30  
  Selling price per club $ 52.00  
  Direct materials cost per club $ 24.60  
  Direct labor rate per hour $ 22.00  

   
     A cost analyst working in the controller's office at the company has already produced the action analysis cost matrix for the Peregrine Golf Club that follows:
   
  Action Analysis Cost Matrix for Peregrine Golf Club
 
Activity Cost Pools
 
  Volume Batch Processing Order Processing Customer Service Total  
  Activity 27.00 direct labor-hours 2
batches
2
order
1
customer
 
  Manufacturing overhead:                    
       Indirect labor $ 34.00   $ 51.80   $ 5.00   $ 0.00   $ 90.80  
       Factory equipment depreciation   103.20     .70     0.00     0.00     103.90  
       Factory administration   15.40     .60     12.00     221.00     249.00  
  Selling and administrative overhead:                    
       Wages and salaries   13.00     0.00     35.00     388.00     436.00  
       Depreciation   0.00     0.00     4.00     20.00     24.00  
       Marketing expenses   116.40     0.00     60.00     372.00     548.40  
 









  Total $ 282.00   $ 53.10   $ 116.00   $ 1,001.00   $ 1,452.10  
 




















   
Required:
Prepare an action analysis report showing the profitability of the Peregrine Golf Club. Include direct materials and direct labor costs in the report. (Round your answers to 2 decimal places. Input all amounts as positive values except losses which should be indicated by a minus sign. Omit the "$" sign in your response.)
   
Peregrine Golf Club
  Sales   $  
  Green costs:    
       Direct materials $  
 

  Green margin    
  Yellow costs:    
       Direct labor    
       Indirect labor    
       Marketing expenses    
 

  Yellow margin    
  Red costs:    
       Factory equipment depreciation    
       Factory administration    
       Selling and administrative wages and salaries    
       Selling and administrative depreciation    
 

  Red margin   $  
   




Explanation: