Question

Pharmacare Inc. specializes in the distribution of pharmaceutical products. Pharmacare operates at capacity and has three main market segments:
a. General supermarket chains
b. Drugstore chains
c. "Mom and Pop" single-store pharmacies Rick Flair, the new controller of Pharmacare, reported the following data for August 2012:
For many years, Pharmacare has used gross margin percentage [(Revenue - Cost of goods sold) ÷ Revenue] to evaluate the relative profitability of its different groupings of cus tomers (distribution outlets). Flair recently attended a seminar on activity-based costing (ABC) and decides to con sider using it at Pharmacare. Flair meets with all the key managers and many staff members.
People generally agree that there are five key activity areas at Pharmacare:
Activity Area Cost Driver
Order processing ............ Number of customer purchase orders
Line-item processing ......... Number of line items ordered by customers
Delivering to stores .......... Number of store deliveries
Cartons shipped to store ........ Number of cartons shipped
Stocking of customer store shelves .... Hours of shelf-stocking
Each customer order consists of one or more line items. A line item represents a single product (such as Extra-Strength Tylenol Tablets). Each product line item is delivered in one or more separate cartons. Each store delivery entails the delivery of one or more cartons of products to a customer. Pharmacare's staff stacks cartons directly onto display shelves in customers' stores. Currently, there is no additional charge to the customer for shelf-stocking and not all customers use Pharmacare for this activity. The level of each activity in the three market segments and the total cost incurred for each activity in 2012 are shown below:
REQUIRED
1. Compute the August 2012 gross margin percentage for each of Pharmacare's three market segments.
2. Compute the August 2012 per-unit cost driver rate for each of the five activity areas.
3. Use the activity-based costing (ABC) information to allocate the $301,080 of "other operating costs" to each of the market segments. Compute the operating income for each market segment.
4. Comment on the results. What new insights are available with the activity-based information?


$1.99
Sales1
Views74
Comments0
  • CreatedJuly 31, 2015
  • Files Included
Post your question
5000