Family Supermarkets FS found that its ABC analysis see p
Family Supermarkets (FS) found that its ABC analysis (see p. 170) provided important insights. FS extends the analysis to cover three more product lines: baked goods, milk and fruit juice, and frozen products. It identifies four activities and activity cost rates for each activity as:
Ordering ...................$120 per purchase order
Delivery and receipt of merchandise ........ $96 per delivery
Shelf-stocking ................ $24 per hour
Customer support and assistance .........$0.24 per item sold
The revenues, cost of goods sold, store support costs, and activity area usage of the three product lines are as follows:
There are no bottle returns for any of these three product lines.
1. Use the previous costing system (support costs allocated to products at the rate of 30% of cost of goods sold) to compute a product line profitability report for FS.
2. Use the ABC system (ordering at $120 per purchase order, delivery at $96 per delivery, shelf-stocking at $24 per hour, and customer support at $0.24 per item sold) to compute a product line profitability report for FS.
3. What new insights does the ABC system in requirement 2 provide to FS managers?
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