Question

Problem 2: Job Costing vs ABC (40 points) Sunset Grocery is expanding their store and is looking to add space to one of three areas. The decision will be based on the profitability of the departments. They have the following data available: Produce $325,000 $195,000 25,000 300 250 Frozen $825,000 $495,000 225,000 700 1,500 5,000 Deli Total $1,650,000 $990,000 312,500 1,600 2,500 10,000 Revenues Cost of Goods Sold # of Items Sold # of Purchase Orders # of Deliveries Hours of Shelf Time $500,000 $300,000 62,500 600 750 4,000 1,000 Currently indirect costs are allocated based on the number of items sold. Indirect costs are as follows: Ordering Costs Delivery Costs Shelf Stocking Costs $ 30,000 $125,000 $ 95.000 Total Indirect Costs 00 $250,000 Required 1. Prepare an income statement broken out by department, including totals using traditional job costing. 2. Prepare an income statement broken out by department, including totals using ABC with the following cost allocations: Ordering Costs: Delivery Costs Shelf Stocking Costs based on # of purchase orders based on # of deliveries based on the # of hours of shelf time 1. 2. 3. 3. Type a brief summary explaining your results and which department would be entitled to a bonus based on profitability.

Please put it in excel spreadsheet with calculations. Thank you

Answer 1

Question 3: In case of traditional job costing, Frozen and Dell will get the bonus.

in case of Activity Based Costing method, Frozen is the most profitable department and is entitled to bonus.

By comparing both the methods, ABC system will generate an accurate results, which is calculated based on the activities performed in the departments.

Please go through the following attachment for solution of Question 1,2

1) Preparation of Income statement under traditional job costing Particulars Produce Frozen Dell Total Revenues 325000 825000 500000 1650000 Less: Cost of Goods sold | 195000| 495000 300000 990000 Less: Indirect Cost 20000 180000 50000 250000 Predetermined rate 25,000*0.8 2,25,000*0.8 62,500*0.8 Net Income 110000 150000 150000 410000 d=a-b-c Predetermined Overhead rate= Total Overhead Cost Number of Units sold 250000 312500 0.8 per unit 2) Preparation of Income statement under ABC job costing Particulars Produce Frozen Dell Total Revenues 325000 825000 500000 1650000 Less: Cost of Goods sold 1 95000 495000 300000 990000 Less: Indirect Cost c 1) Ordering Costs 5625 13125 11250 30000 Note 1 300*18.75 700*18.75 600*18.75 2) Delivery Costs 12500 75000 37500 125000 Note 2 250*50 1500*50750*50 3) Shelf Stocking Costs 9500 47500 38000 95000 Note 3 1000*9.5 5000*9.5 4000*9.5 a-b-c-d-e Net Income 102375 194375 113250 410000 Note 1 Ordering Cost rate per order = Ordering Costs Total Purchase orders 30000 1600 18.75 per order Note 2 Delivery Cost per delivery = Total Delivery Cost Number of Deliveries 125000 2500 50 per delivery Note 3 Shelf Stocking Cost per hour Shelf Stocking Cost Hours of shelf time 95000 10000 Per Hour