Granger Supermarkets (GS) operates at capacity and decides to apply ABC analysis to three product lines: baked goods, milk and fruit juice, and frozen foods. It identifies four activities and their activity cost rates:

Ordering................... $ 98 per purchase order

Delivery and receipt of merchandise .........$ 81 per delivery

Shelf- stocking ................$ 22 per hour

Customer support and assistance ..........$ 0.18 per item sold

The revenues, cost of goods sold, store support costs, the activities that account for the store support costs, and activity- area usage of the three product lines are as follows.

Under its simple costing system, GS allocated support costs to products at the rate of 30% of cost of goods sold.

Required
1. Use the simple costing system to prepare a product- line profitability report for GS.
2. Use the ABC system to prepare a product- line profitability report for GS.
3. What new insights does the ABC system in requirement 2 provide to GS’smanagers?

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Baked Goods Milk and Fruit Juice Frozen Products Financial data Revenues Cost of goods sold Store support $58,000 $37,000 $11,100 $64.000 $45,000 $13,500 $52,500 $36,000 $10,800 Activity-area usage (cost-allocation base) Ordering (purchase orders) Delivery (deliveries) Shelf-stocking (hours) Customer support (items sold) 35 85 175 12,000 30 45 155 16,000 20 30 25 7,000