Acct303 Cost Accounting: 5-40 Super Bookstore (SB) is a large city bookstore that sells books

Acct303 Cost Accounting
5-40 Activity-Based Costing, cost hierarchy (Req 1 & 2 only)
Super Bookstore (SB) is a large city bookstore that sellsbooks and music CDs, and has a café. SB operates at capacity and allocates selling, general and administration (S, G & A)costs to each product line using the cost of merchandise of each product line. SB wants to optimize the pricing and cost management of each product line. SB is wondering if its accounting system is providing it with the best information for making such decisions.
Super Bookstore
Product Line Information
For the Year Ended December 31,2010
Books CDs Café
Revenues 3,720,480 2,315,360 736,216
Cost of Merchandise 2,656,727 1,722,311 556,685
Cost of Café Cleaning - - 18,250
Number of Purchase orders Placed 2,800 2,500 2,000
Number of Deliveries Received 1,400 1,700 1,600
Hours of Shelf Stocking Time 15,000 14,000 10,000
Items sold 124,016 115,768 368,108

Super Bookstore incurred the following Selling, General & Administration costs:
Super Bookstore
Selling, General & Administration costs
For the Year Ended December 31,2010
Purchase Department Expenses 474,500
Receiving Department Expenses 432,400
Shelf Stocking Labor Expense 487,500
Customer Support Expense (cashier and floor employees) 91,184
1,485,584

1. Suppose Super bookstore uses cost of merchandise to allocate all S, G & A costs. Prepare product line and total company income statements.
2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G& A costs that you propose to prepare new product line and total company income statements. Compare your results to the results in 1.
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