Activity based concept states that costs should be recognized on the basis of activities which they can be traced back to and not specific blanket rate.
Requirement 1
Product line profitability under current costing approach
Frozen Foods |
Baked Goods |
Fresh Produce |
|
Sales |
$ 135,000 |
$ 120,000 |
$ 194,000 |
Cost of Goods Sold |
$ 117,000 |
$ 88,000 |
$ 136,000 |
Gross Margin |
$ 18,000 |
$ 32,000 |
$ 58,000 |
Store Support Expenses |
$ 31,050 |
$ 27,600 |
$ 44,620 |
Operating profit (loss) |
$ (13,050) |
$ 4,400 |
$ 13,380 |
Operating margin |
-9.67% |
3.67% |
6.90% |
Requirement 2
Product line profitability under ABC costing approach
Frozen Foods |
Baked Goods |
Fresh Produce |
|
Sales |
$ 135,000 |
$ 120,000 |
$ 194,000 |
Cost of Goods Sold |
$ 117,000 |
$ 88,000 |
$ 136,000 |
Gross Margin |
$ 18,000 |
$ 32,000 |
$ 58,000 |
Store support expenses |
|||
Order processing [81* (12 ,49,100)] |
$ 972 |
$ 3,969 |
$ 8,100 |
Receiving [108 * (12,52,131)] |
1296 |
5616 |
14148 |
Shelf-stocking [12 * (12*3 , 52*0.1 , 131*6)] |
432 |
62.4 |
9432 |
Customer support [ 0.25 *(22,000 , 35,000 , 70,000)] |
5500 |
8750 |
17500 |
Total store support costs |
$ 8,200 |
$ 18,397 |
$ 49,180 |
Operating income |
$ 9,800 |
$ 13,603 |
$ 8,820 |
Operating margin |
7.26% |
11.34% |
4.55% |
TELEIL penuu die. Frozen Foods $135,000 117,000 Fresh Baked Goods Produce $120,000 $194,000 88,000 136,000 Sales...
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 $ 148,000 $ 142,000 $ 211,000 Cost of goods sold 128,000 104,000 153,000 SFS estimates that store support expenses, in total, are approximately 14% of revenues. The controller says that...
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 $135,000 119,000 Fresh Baked Goods Produce $120,000 $184,000 88,000 128,000 Sales Cost of goods sold SFS estimates that store support expenses, in total, are approximately 17% of revenues. The controller says that not every sales...
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: Baked Fresh Frozen Foods Goods Produce $126,000 110,000 Sales $98,000 $165,000 115,000 Cost of qoods sold 72,000 SFS estimates that store support expenses, in total, are approximately 14% of revenues. The controller says that not every sales...
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 $ 135,000 $ 120,000 $ 194,000 Cost of goods sold 117,000 88,000 136,000 SFS estimates that store support expenses, in total, are approximately 23% of revenues. The controller says that...
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 Sales Cost of goods sold $288,000 271, 000 Fresh Produce $524, 000 404, 000 Baked Goods $493, 000 399,000 SFS estimates that store support expenses, in total, are approximately 13% of revenues. The controller says...
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 Sales Cost of goods sold $288,000 271, 000 Fresh Produce $524, 000 404, 000 Baked Goods $493, 000 399,000 SFS estimates that store support expenses, in total, are approximately 13% of revenues. The controller says...
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 $129,000 111,000 Sales Cost of goods sold Baked Goods $102,000 75,000 Fresh Produce $170,000 118,000 SFS estimates that store support expenses, in total, are approximately 20% of revenues. The controller says that not every sales...
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: Baked Fresh Frozen Foods Goods Produce $91,000 67,000 $158,175 110,000 Sales $120,000 Cost of goods sold 105,000 SFS estimates that store support expenses, in total, are approximately 20% of revenues. The controller says that not every sales...
Z-Mart operates a supermarket with three product lines: Baked Goods, Milk, and Frozen Foods. The revenues and cost data of the three product lines are: Baked Goods Milk Frozen Foods Total Revenues $59,500 $66,000 $50,500 $176,000 Cost of Goods Sold $40,000 $49,000 $37,000 $126,000 Store Support Cost $ 37,800 Under the simple costing system, Z-Mart allocated its indirect cost (i.e., Store Support costs) to products at the rate of 30% of cost of goods sold. a) Using the simple costing...
The revenues, cost of goods sold, store support costs, activities that account for the store support costs, 2 and activity area usage of the three product lines are as follows: 3 4 Baked Goods Milk and Fruit Juice Frozen Products 6 $60,000 $41,000 $12,300 $66,500 $51,000 $15,300 $50,500 $32,000 $9,600 5 Financial data Revenues 7 Cost of goods sold 8 Store support 9 Activity area usage (cost-allocation base) 10 Ordering (purchase orders) 11 Delivery (deliveries) 12 Shelf-stocking (hours) Customer support...