Studemeir Paint & Floors (SPF) has experienced net operating losses in its Other Flooring Products line during the last few periods. SPF’s management team thinks that the store will improve its profitability if they discontinue the Other Flooring Products line. The operating results from the most recent period are:

 

	Paint & Paint Supplies		Other Flooring Products
		Carpet
Sales	$285,000	$235,000	$175,550
Cost of goods sold	$165,000	$150,000	$135,250

SPF estimates that store support expenses are approximately 28.5 percent of revenues. Harish Rana, SPF’s controller, states that not every sales dollar requires or uses the same amount of store support activities. He conducts a preliminary investigation and his results and analysis are as follows:

 

	Paint & Paint Supplies		Other Flooring Products
		Carpet
Order Processing (# of purchase orders)	110	200	25
Receiving (# of deliveries)	40	120	10
Inventory management (# of hours per delivery)	10	40	6
Customer support (hours required per sale)	0.50	8.50	0.25

Harish estimates activity-cost rates for each activity as follows:

Order processing ........$135 per purchase order

Receiving ........... 180 per delivery

Inventory management ..... 30 per hour

Customer support ....... 15 per hour

Required

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

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

3. What new insights does the ABC system in requirement 2 provide to SPFmanagers?