Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are: Frozen Foods Baked Goods Fresh Produce Sales $ 164,000 $ 198,000 $ 262,000 Cost of goods sold 150,000 160,000 200,000 SFS estimates that store support expenses, in total, are approximately 15% of revenues. The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are: Activity (cost driver) Frozen Foods Baked Goods Fresh Produce Order processing (number of purchase orders) 11 54 95 Receiving (number of deliveries) 12 71 172 Shelf-stocking (number of hours per delivery) 6 0.2 7 Customer support (total units sold) 20,000 37,000 74,000 The controller estimates activity-cost rates for each activity as follows: Order processing $ 87 per purchase order Receiving 102 per delivery Shelf-stocking 16.00 per hour Customer support 0.18 per item
Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are:
| Frozen Foods | Baked Goods | Fresh Produce | |
|---|---|---|---|
| Sales | $ 164,000 | $ 198,000 | $ 262,000 |
| Cost of goods sold | 150,000 | 160,000 | 200,000 |
SFS estimates that store support expenses, in total, are approximately 15% of revenues.
The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are:
| Activity (cost driver) | Frozen Foods | Baked Goods | Fresh Produce |
|---|---|---|---|
| Order processing (number of purchase orders) | 11 | 54 | 95 |
| Receiving (number of deliveries) | 12 | 71 | 172 |
| Shelf-stocking (number of hours per delivery) | 6 | 0.2 | 7 |
| Customer support (total units sold) | 20,000 | 37,000 | 74,000 |
The controller estimates activity-cost rates for each activity as follows:
| Order processing | $ 87 | per purchase order |
|---|---|---|
| Receiving | 102 | per delivery |
| Shelf-stocking | 16.00 | per hour |
| Customer support | 0.18 | per item |
Required:
1. Prepare a product-line profitability report for SFS under the current costing system.
2. Prepare a product-line profitability report for SFS using the ABC information the controller provides.
- Required 1
- Required 2
Prepare a product-line profitability report for SFS using the ABC information the controller provides. (Loss amounts should be indicated by a minus sign. Round operating margin (loss) to 2 decimal places (i.e. 0.2134 should be entered as 21.34%). Round all other answers to nearest whole dollar.)
|
|
|
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
