Zodiac Model Rocketry Company sells model rocketry kits and supplies to retail outlets and through its catalog. Some of the items are manufactured by Zodiac, while others are purchased for resale. For the products it manufactures, the company currently bases its selling prices on a product-costing system that accounts for direct material, direct labor, and the associated overhead costs. In addition to these product costs, Zodiac incurs substantial selling costs, and Jack Maxey, controller, has suggested that these sell- ing costs should be included in the product pricing structure.
After studying the costs incurred over the past two years for one of its products, rocket motors, Maxey has selected four categories of selling costs and chosen cost drivers for each of these costs. The selling costs actually incurred during the past year and the cost drivers are as follows:
|
Cost Category
Sales commissions .......................................
|
Amount
$ 675,000
|
Cost Driver
Boxes of rocket motors sold to retail stores
|
|
Catalogs .......................................................
|
295,400
|
Catalogs distributed
|
|
Costs of catalog sales ...................................
|
105,000
|
Rocket motors sold through catalogs
|
|
Credit and collection .....................................
|
60,000
|
Number of retail orders
|
|
Total selling costs ..........................................
|
$1,135,400
|
|
The rocket motors are sold to retail outlets in boxes, each containing 12 motors. The sale of partial boxes is not permitted. Commissions are paid on sales to retail outlets but not on catalog sales. The cost of catalog sales includes telephone costs and the wages of personnel who take the catalog orders. Maxey believes that the selling costs vary significantly with the size of the order. Order sizes are divided into three categories as follows:
|
Order Size
|
Catalog Sales
|
Retail Sales
|
|
Small ...........................................................
|
1-10 rocket motors
|
1-10 boxes of motors
|
|
Medium .......................................................
|
11-20 rocket motors
|
11-20 boxes of motors
|
|
Large ...........................................................
|
Over 20 rocket motors
|
Over 20 boxes of motors
|
An analysis of the previous year's records produced the following statistics.
Order Size
|
Retail sales in boxes (12 motors per box) ..............................
|
Small
2,000
|
Medium
45,000
|
Large
178,000
|
Total
225,000
|
|
Catalog sales in units (i.e., motors) .......................................
|
79,000
|
52,000
|
44,000
|
175,000
|
|
Number of retail orders .......................................................
|
485
|
2,415
|
3,100
|
6,000
|
|
Catalogs distributed ............................................................
|
254,300
|
211,300
|
125,200
|
590,800
|
Required:
1. Prepare a schedule showing Zodiac Model Rocketry Company's total selling cost for each order size and the per-rocket motor selling cost within each order size.
2. Explain how the analysis of the selling costs for rocket motors is likely to impact future pricing and product decisions at Zodiac Model Rocketry Company.