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

question 28

Essay

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.

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Definitions:

Analysis of Covariance

A statistical method used to compare the means of more than two groups while controlling for the effects of one or more other variables.

Multivariate Analysis

A set of statistical techniques used to analyze data that arises from more than one variable.

SEM

Standard Error of the Mean, a statistic that measures the precision with which the sample mean represents the population mean.

Path Analysis

A specialized kind of regression analysis used in structural equation modeling to describe the directed dependencies among a set of variables.