Granger Supermarkets (GS) operates at capacity and decides to apply ABC analysis to three product lines: baked
Question:
Granger Supermarkets (GS) operates at capacity and decides to apply ABC analysis to three product lines: baked goods, milk and fruit juice, and frozen foods. It identifies four activities and their activity cost rates:
Ordering................... $ 98 per purchase order
Delivery and receipt of merchandise .........$ 81 per delivery
Shelf- stocking ................$ 22 per hour
Customer support and assistance ..........$ 0.18 per item sold
The revenues, cost of goods sold, store support costs, the activities that account for the store support costs, and activity- area usage of the three product lines are as follows.
Under its simple costing system, GS allocated support costs to products at the rate of 30% of cost of goods sold.
Required
1. Use the simple costing system to prepare a product- line profitability report for GS.
2. Use the ABC system to prepare a product- line profitability report for GS.
3. What new insights does the ABC system in requirement 2 provide to GS’smanagers?
Step by Step Answer:
Managerial Accounting Decision Making and Motivating Performance
ISBN: 978-0137024872
1st edition
Authors: Srikant M. Datar, Madhav V. Rajan