Question

Ordering Delivery and receipt of merchandise Shelf-stocking Customer support and assistance $104 per purchase order $82 per delivery $18 per hour $0.24 per item sold

Answer 1

A B C 1 Requirement1: Product life Profitability as per Simple Costing System 2 3 Particulars Baked Goods Milk And Fruit Juice Frozen Products Total 4 Revenue 57500 66500 50500 5 Costs: 6 Cost of Goods Sold 39000 46000 33000 7 Store Support(30% of COGS) 11700 13800 9900 8 Total Costs 50700 59800 42900 9 Operating Income 6800 6700 7600 10 Operating Income/Revenue 11.82% 10.07% 15.05% 11 12 13 Requirement2: Product line profitability by ABC Costing System 14 15 Particulars Baked Goods Milk And Fruit Juice Frozen Products Total 16 Revenue 57500 66500 50500 17 Costs: 18 Cost of Goods Sold 39000 46000 33000 19 Store Support: 20 Ordering(No of Order*$104) 2080 1560 520 21 Delivery(No of deliveries*$82) 8200 3280 2870 22 Shelf-stocking(No of Hours*$18) 3510 3060 270 23 Customer Support(No of Item Sold*$0.24) 3720 4650 1680 24 Total Support Cost 17510 12550 5340 25 26 Total Costs 56510 58550 38340 990 27 Operating Income 7950 12160 1.72% 28 Operating Income/Revenue 11.95% 24.07% 29

Requirement3: In Simple costing method overhead cost is allocated/assigned to products on the basics of one particulare base like: absorbtion rate On the other hand In ABC costing Method cost is assigned to each product on the basis of activity involved. Therefore ABC costing is treated as more appropriate method of overhead cost allocation. In above Question, Effect of ABC Method as Compared to simple Costing Method: BAKED GOODS = Operating income reduced MILK AND FRUIT JUICE = Operating income icreased FROZEN PRODUCTS = Operating income icreased NOTE: ALL AMOUNTS ARE IN $