Problem:
ABC, retail product-line profitability. Family Supermarkets (FS) operates at capacity and decides to apply ABC analysis to three product lines: baked goods, milk and fruit juice, and frozen foods. It identifies four activities and their activity cost rates as follows:
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Ordering
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$100 per purchase order
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Delivery and receipt of merchandise
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$ 80 per delivery
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Shelf-stocking
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$ 20 per hour
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|
Customer support and assistance
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$ 0.20 per item sold
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The revenues, cost of goods sold, store support costs, the activities that account for the store support costs, and activity-area usage of the three product lines are as follows:
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Baked Goods
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Milk and Fruit Juice
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Frozen Products
|
|
Financial data
|
|
|
|
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Revenues
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$57,000
|
$63,000
|
$52,000
|
|
Cost of goods sold
|
$38,000
|
$47,000
|
$35,000
|
|
Store support
|
$11,400
|
$14,100
|
$10,500
|
|
Activity-area usage (cost-allocation base)
|
|
|
|
|
Ordering (purchase orders)
|
30
|
25
|
13
|
|
Delivery (deliveries)
|
98
|
36
|
28
|
|
Shelf-stocking (hours)
|
183
|
166
|
24
|
|
Customer support (items sold)
|
15,500
|
20,500
|
7,900
|
Under its simple costing system, FS allocated support costs to products at the rate of 30% of cost of goods sold.
1. Use the simple costing system to prepare a product-line profitability report for FS.
2. Use the ABC system to prepare a product-line profitability report for FS.
3. What new insights does the ABC system in requirement 2 provide to FS managers?