Henderson Supermarkets (HS) 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 as follows:

Ordering ...............$ 102 per purchase order

Delivery and receipt of merchandise .... $ 78 per delivery

Shelf- stocking ............$ 21 per hour

Customer support and assistance .....$ 0.22 per item sold

The revenues, cost of goods sold, store support costs, 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, HS 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 HS.
2. Use the ABC system to prepare a product- line profitability report for HS.
3. What new insights does the ABC system in requirement 2 provide to HSmanagers?

Transcribed Image Text:

Baked Geods Milk and Fruit Juice Frozen Products Financial data Revenues Cost of goods sold Store support $59,500 $36,000 S10,800 $66,000 $48,000 14,400 $51,000 $34,000 10,200 Activity-area usage (cost-allocation base) Ordering (purchase orders) Delivery (deliveries) Shelf-stocking (hours Customer support (items sold) 25 90 190 13,500 20 35 180 17,500 15 30 40 8,000