Acct434 Advanced Cost Management: 5-23 Family Supermarkets (FS) operates at capacity

Acct434 Advanced Cost Management
Week 1 Homework

5-23 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:
Ordering 100 per purchase order
Delivery and receipt of merchandise 80 per delivery
Shelf-stocking 20 per hour
Customer support and assistance 0.20 per item sold
The revenues, cost of goods sold, store support costs, and activity-area usage of the three product lines are:
Baked Goods Milk and Fruit Juice Frozen Products
Financial data
        Revenues 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.

Required
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?
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