Studemeir Paint & Floors (SPF) is a retail store specializing in home improvement. The store 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 it stops carrying the Other Flooring Products line. The operating results from the most recent period are:

SPF estimates that store operating expenses are approximately 24% of revenues.
Harish Rana, SPF’s controller, states that while every sale has one purchase order, 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:

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

Order processing $140 per purchase order
Receiving 180 per delivery
Customer support 18 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 SPF managers?

Transcribed Image Text:

Paint and Paint Supplies Carpet Other Flooring Products $295,000 $214,900 150,000 $167,900 135,250 Sales Cost of goods sold 165,000