Question

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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  • CreatedJanuary 15, 2015
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