Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in...

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Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Ma 1. Prepare a product-line profitability report for SFS under the current costing system. 2. Prepare a product-line profitabil

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Answer 1

Answer #1

Answer -

1. Answer -

	Frozen food	Baked food	Fresh produce
Sales	$120000	$91000	$158175
Cost of goods sold	$105000	$67000	$110000
Gross margin	$15000	$24000	$48175
Store support	$24000	$18200	$31635
Operating income (loss)	($9000)	$5800	$16540
Operating margin (loss)	(7.50%)	6.37%	10.46%

Calculation:

1. Gross margin:

Frozen food:

Gross margin = Sales - Cost of goods sold

= $120000 - $105000

= $15000

Baked food:

Gross margin = Sales - Cost of goods sold

= $91000 - $67000

= $24000

Fresh produce:

Gross margin = Sales - Cost of goods sold

= $158175 - $110000

= $48175

2. Store support:

As per given information, SFS estimates that store support expenses are 20% of revenues.

Frozen food:

Store support = 20% * Sales

= 20% * $120000

= $24000

Baked food:

Store support = 20% * Sales

= 20% * $91000

= $18200

Fresh produce:

Store support = 20% * Sales

= 20% * $158175

= $31635

3. Operating income (loss):

Frozen food:

Operating income (loss) = Gross margin - Store support

= $15000 - $24000

= ($9000)

Baked food:

Operating income (loss) = Gross margin - Store support

= $24000 - $18200

= $5800

Fresh produce:

Operating income (loss) = Gross margin - Store support

= $48175 - $31635

= $16540

4. Operating margin (loss):

Frozen food:

Operating margin (loss) = [Operating income (loss) / Sales] * 100

= [($9000) / $120000] * 100

= (7.50%)

Baked food:

Operating margin (loss) = [Operating income (loss) / Sales] * 100

= [$5800 / $91000] * 100

= 6.37%

Fresh produce:

Operating margin (loss) = [Operating income (loss) / Sales] * 100

= [$16540 / $158175] * 100

= 10.46%

2. Answer -

	Frozen food	Baked food	Fresh produce
Sales	$120000	$91000	$158175
Cost of goods sold	$105000	$67000	$110000
Gross margin	$15000	$24000	$48175
Store support:
Order processing	$800	$3600	$8000
Receiving	$1320	$6050	$13200
Shelf-stocking	$31	$8	$61
Customer support	$6300	$8400	$18060

Total store support cost	$8451	$18058	$39321
Operating income (loss)	$6549	$5942	$8854
Operating margin (loss)	5.46%	6.53%	5.60%

Calculation:

1. Order processing:

Frozen food:

Order processing = [Number of purchase orders * $80 per purchase order]

= [10 * $80 per purchase order]

= $800

Baked food:

Order processing = [Number of purchase orders * $80 per purchase order]

= [45 * $80 per purchase order]

= $3600

Fresh food:

Order processing = [Number of purchase orders * $80 per purchase order]

= [100 * $80 per purchase order]

= $8000

2. Receiving:

Frozen food:

Receiving = [Number of deliveries * $110 per delivery]

= [12 * $110 per delivery]

= $1320

Baked food:

Receiving = [Number of deliveries * $110 per delivery]

= [55 * $110 per delivery]

= $6050

Fresh food:

Receiving = [Number of deliveries * $110 per delivery]

= [120 * $110 per delivery]

= $13200

3. Shelf-stocking:

Frozen food:

Shelf-stocking = [Number of hours per delivery * $15.25 per hour]

= [2 * $15.25 per hour]

= $30.50 ≈ $31

Baked food:

Shelf-stocking = [Number of hours per delivery * $15.25 per hour]

= [0.5 * $15.25 per hour]

= $7.625 ≈ $8

Fresh food:

Shelf-stocking = [Number of hours per delivery * $15.25 per hour]

= [4 * $15.25 per hour]

= $61

4. Customer support:

Frozen food:

Customer support = [Total units sold * $0.21 per item]

= [30000 units * $0.21 per item]

= $6300

Baked food:

Customer support = [Total units sold * $0.21 per item]

= [40000 units * $0.21 per item]

= $8400

Fresh food:

Customer support = [Total units sold * $0.21 per item]

= [86000 units * $0.21 per item]

= $18060

5. Total store support:

Frozen food:

Total store support = Order processing + Receiving + Shelf-stocking + Customer support

= $800 + $1320 + $31 + $6300

= $8451

Baked food:

Total store support = Order processing + Receiving + Shelf-stocking + Customer support

= $3600 + $6050 + $8 + $8400

= $18058

Fresh food:

Total store support = Order processing + Receiving + Shelf-stocking + Customer support

= $8000 + $13200 + $61 + $18060

= $39321

6. Operating income (loss):

Frozen food:

Operating income (loss) = Gross margin - Store support

= $15000 - $8451

= $6549

Baked food:

Operating income (loss) = Gross margin - Store support

= $24000 - $18058

= $5942

Fresh produce:

Operating income (loss) = Gross margin - Store support

= $48175 - $39321

= $8854

7. Operating margin (loss):

Frozen food:

Operating margin (loss) = [Operating income (loss) / Sales] * 100

= [$6549 / $120000] * 100

= 5.46%

Baked food:

Operating margin (loss) = [Operating income (loss) / Sales] * 100

= [$5942 / $91000] * 100

= 6.53%

Fresh produce:

Operating margin (loss) = [Operating income (loss) / Sales] * 100

= [$8854 / $158175] * 100

= 5.60%

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