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:

Arboreal Environment

A habitat characterized by the presence of trees where many organisms live among the branches and foliage.

Mismatched

Refers to components, items, or elements that do not properly align, fit, or correspond with one another.

Anthropoid

A member of a suborder of primates that includes monkeys, apes, and humans.

DNA Sequence

The precise order of nucleotides within a DNA molecule, determining genetic information carried by that molecule.