Pharmahelp, Inc., a distributor of special pharmaceutical products, 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 Pharmahelp, reported the following data for 2017.

For many years, Pharmahelp has used gross margin percentage [(Revenue - Cost of goods sold) ÷ Revenue] to evaluate the relative profitability of its market segments. But Flair recently attended a seminar on activity-based costing and is considering using it at Pharmahelp to analyze and allocate "other operating costs." He meets with all the key managers and several of his operations and sales staff, and they agree that there are five key activities that drive other operating costs at Pharmahelp:
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. Pharmahelp'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 Pharmahelp for this activity. The level of each activity in the three market segments and the total cost incurred for each activity in 2017 is as follows:

Required
1. Compute the 2017 gross-margin percentage for each of Pharmahelp's three market segments.
2. Compute the cost driver rates for each of the five activity areas.
3. Use the activity-based costing 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 costing information?

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Pharmahelp, 2017 General Su arket Drugstore Mom-and-Po Total For Pharmahel $8,838,000 8,400,000 438,000 301,080 Chains $3,708,000 3,600,000 Chains $3,150,000 3,000,000 Single Stores $1,980,000 1,800,000 Cost of s sold Gross margin Other costs income Activity-based Cost Data Pharmahelp 2017 Activity Level Total Cost ener upermarket Chains 140 Mom-and-Pop Single Stores 1,500 ugstore Chains 360 of Activi in 2017 Activity Orders processed (number) Line-items ordered (number Store deliveries made (number Cartons shipped to stores (number Shelf $80,000 63,840 71,000 76,000 10,240 15 120 36,000 360 24,000 180 1,000 16,000 hours 100