Question

b. Genie Corner Stores operates aleancity and decides to apply ABC analysis to three product lines: baked goods. milk and fruit juice and frozen foods. Total store and supporting costs (indirect/overhead costs) are $37,760. These indirect/overhead costs are identified in the following activities (cost pools) and their respective cost drivers Activity Total cost Cost driver Ordering Delivery Shelf-stocking Customer support Total $ 7.890 $ 17, 445 $ 5.640 $6785 $37, 760 Number of purchase orders Number of deliveries Number of hours Number of items sold Baked goods Milk and fruit juice Frozen products Financial data Revenues Cost of goods sold $65,000 $26, 000 $67, 500 $30,375 $41, 250 $33,000 Cost Driver Purchase orders Deliveries Shelf-stocking hours Items sold 27 66 35 42 17 125 175 15.400 165 80 20, 200 7 ,960 Required: Use the ABC system to prepare a product-line profitability report for Genie. Comment on the results. (3 + 12 - 15 Marks) Page 6 of 9

Answer 1

Assignment of overhead costs :

Activity	Cost	Cost Driver	Volume of Cost Driver	Activity Rate	Baked Goods	Milk and Fruit Juice	Frozen Products
Ordering	$ 7,890	Purchase Orders	79	$ 99.8734 per purchase order	1,697.85	2,696.58	3,495.57
Delivery	17,445	Deliveries	233	74.8712 per delivery	9,358.90	4,941.50	3,144.59
Shelf Stocking	5,640	No. of Hours	420	13.4286 per hour	2,350	2,215.72	1,074.28
Customer Support	6,785	No. of Items Sold	43,560	0.1558 per item sold	2,399.32	3,147.16	1,238.52
Totals	37,760				15,806.07	13,000.97	8,952.96

Product line profitability report:

	Baked Goods	Milk and Fruit Juice	Frozen Products
Revenue	$ 65,000	$ 67,500	$ 41,250
Cost of Goods Sold	26,000	30,375	33,000
Supporting Costs	15,806	13,001	8,953
Product Line Profit ( Loss )	23,194	24,124	(703)