Brent Company's cost system assigns MSDA expenses to customers using a rate of 33% of sales revenue.The new CFO has discovered that Brent's customers differ greatly in their ordering patterns and interaction with Brent's sales force.Because the CFO believes Brent's cost system does not accurately assign MSDA expenses to customers,he developed an ABC system and gathered the following information.

Required:
(a)Using the current cost system's approach of assigning MSDA expenses to customers using a rate of 33% of sales revenue,determine the operating profit associated with Austin and with Brooke.
(b)Using the activity-based costing information provided,determine the operating profit associated with Austin and with Brooke.
(c)Which of the two methods produces more accurate assignments of MSDA expenses to customers? Explain.

Question

Brent Company's cost system assigns MSDA expenses to customers using a rate of 33% of sales revenue.The new CFO has discovered that Brent's customers differ greatly in their ordering patterns and interaction with Brent's sales force.Because the CFO believes Brent's cost system does not accurately assign MSDA expenses to customers,he developed an ABC system and gathered the following information.
  
Required:
(a)Using the current cost system's approach of assigning MSDA expenses to customers using a rate of 33% of sales revenue,determine the operating profit associated with Austin and with Brooke.
(b)Using the activity-based costing information provided,determine the operating profit associated with Austin and with Brooke.
(c)Which of the two methods produces more accurate assignments of MSDA expenses to customers? Explain.

Quizplus · Accepted Answer

The Answer of Brent Company's cost system assigns MSDA expenses to customers using a rate of 33% of sales revenue.The new CFO has discovered that Brent's customers differ greatly in their ordering patterns and interaction with Brent's sales force.Because the CFO believes Brent's cost system does not accurately assign MSDA expenses to customers,he developed an ABC system and gathered the following information.
  
Required:
(a)Using the current cost system's approach of assigning MSDA expenses to customers using a rate of 33% of sales revenue,determine the operating profit associated with Austin and with Brooke.
(b)Using the activity-based costing information provided,determine the operating profit associated with Austin and with Brooke.
(c)Which of the two methods produces more accurate assignments of MSDA expenses to customers? Explain.

Brent Company's Cost System Assigns MSDA Expenses to Customers Using