Main Street Books and Café (MSBC) is a large city bookstore that sells books and music CDs and has a café. MSBC operates at capacity and allocates selling, general, and administration (S, G & A) costs to each product line using the cost of merchandise of each product line. MSBC wants to optimize the pricing and cost management of each product line. MSBC is wondering if its accounting system is providing it with the best information for making such decisions.

1. Suppose MSBC uses cost of merchandise to allocate all S, G & A costs. Prepare product line and total company income statements.
2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G & A costs that you propose to prepare new product line and total company income statements. Compare your results to the results in requirement 1.
3. Write a memo to MSBC management describing how the improved system might be useful for managing thestore.

  • CreatedMay 14, 2014
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