Supermart Food Stores $($SFS$)$ has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are:

Frozen Foods Baked Goods Fresh Produce

Sales $ $120,000$ $ $91,000$ $ $158,175$

Cost of goods sold $105,00067,000110,000$

SFS estimates that store support expenses, in total, are approximately $20\%$ of revenues.

The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are:

Activity $($cost driver$)$ Frozen Foods Baked Goods Fresh Produce

Order processing $($number of purchase orders$)1045100$

Receiving $($number of deliveries$)1255120$

Shelf$-$stocking $($number of hours per delivery$)20\mathrm{.}54$

Customer support $($total units sold$)30,00040,00086,000$

The controller estimates activity$-$cost rates for each activity as follows:

Order processing $ $80$ per purchase order

Receiving $110$ per delivery

Shelf$-$stocking $15\mathrm{.}25$ per hour

Customer support $0\mathrm{.}21$ per item

Required:

$1.$ Prepare a product$-$line profitability report for SFS under the current costing system.

$2.$ Prepare a product$-$line profitability report for SFS using the ABC information the controller provides.

Answer rating: 100% (QA)

1 ProductLine Profitability Report under the Current Costing System Product Line Sales Cost of Goods Sold Store Support Expenses 20 of Sales Total Cos... View the full answer