Main Street Books and Caf (MSBC) is a large city bookstore that sells books and music CDs

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.

Required
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.

Transcribed Image Text:

Main Street Books and Cafe Product Line Information For the Year Ended December 31, 2014 Books CDs Café 3,720,480 $2,656,727 Revenues Cost of merchandise Cost of café cleaning Number of purchase orders placed Number of deliveries received Hours of shelf stocking time Items sold 2,800 1,400 15,000 124,016 2,315,360736,216 1,722,3 $556,685 $18,250 2,000 1,600 10,000 115768 368,108 2,500 1,700 14,000 Main Street Books and Café incurs the following selling, general, and administration costs Main Street Books and Cafe Selling, General, and Administration (S, G & A) Costs For the Year Ended December 31, 2014 Purchasing department expense Receiving department expense Shelf stocking labor expense Customer support expense (cashiers and floor employees) 474,500 32,400 487 500 91,184 $1,485,584