Question

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 dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are: Baked Fresh Activity (cost driver) Frozen Foods Goods Produce Order processing (number of purchase orders) Receiving (number of deliveries) Shelf-stocking (number of hours per delivery) Customer support (total units sold) 11 43 107 9 56 126 4 0.2 7 27,000 40,000 80,000 The controller estimates activity-cost rates for each activity as follows: Order processing Receiving Shelf-stocking Customer support 80 per purchase order 108 per delivery 15.00 per hour 0.11 per item Required: 1. Prepare a product-line profitability report for SFS under the current costing system 2. Prepare a product-line profitability report for SFS using the ABC information the controller provides. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Prepare a product-line profitability report for SFS under the current costing system. (Loss amounts should be indicated by minus sign. Round operating margin (loss) to 2 decimal places (i.e. 0.2134 should be entered as 21.34%).) Frozen Food Baked Goods Fresh Produce Sales $ C C Operating income (loss) Operating margin (loss) % % % Required 1 Required 2 Required 1 Required 2 Prepare a product-line profitability report for SFS using the ABC information the controller provides. (Loss amounts should be indicated by a minus sign. Round operating margin (loss) to 2 decimal places (i.e. 0.2134 should be entered as 21.34%). Round all other answers to nearest whole dollar.) Frozen Food Baked Goods Fresh Produce $ 0 $ C C Store support: Total store support cost 0 0 0 Operating income (loss) Operating margin (loss) % % Required 1 Required 2

Answer 1

Rq a
			Frozn Food	Baked Goods	Frresh Produce
Sales			126000	98000	165000
Cost of goods sold			110000	72000	115000
Gross profits			16000	26000	50000
Store support xpnss			17640	13720	23100
Oprating income			-1640	12280	26900
Oprating margin			-1.30%	12.53%	16.30%
(Operating income/ Sales)
Req b:
			Frozn Food	Baked Goods	Frresh Produce
Sales			126000	98000	165000
Cost of goods sold			110000	72000	115000
Gross profits			16000	26000	50000
Store support xpnss
Order processing			880	3440	8560
Receiving			972	6048	13608
Shelf shocking			540	168	13230
customer support			2970	4400	8800
Total support xpnse			5362	14056	44198
Operating Income			10638	11944	5802
Oprating margin			8.44%	12.19%	3.52%
(Operating income/ sales)