5-41 Activity-based costing, activity-based management, merchandising. Super Bookstore (SB) is a large city bookstore that sells books and music CDs, and has a cafe. SB operates at capacity and allocates selling, general, and administration (S, G & A) costs to each product line using the cost of merchandise of each product line. SB wants to optimize the pricing and cost management of each product line. SB is wondering if its accounting system is providing it with the best information for mak- ing such decisions. Super Bookstore Product Line Information For the Year Ended December 31, 2010 Books CDS Cafe Revenues $3,720,480 $2,315,360 $736,216 Cost of merchandise $2,656,727 $1,722,311 $556,685 Cost of cafe cleaning $ 18,250 Number of purchase orders placed 2,800 2,500 2,000 Number of deliveries received 1,400 1,700 1,600 Hours of shelf stocking time 15,000 14,000 10,000 Items sold 124,016 115,768 368,108 Super Bookstore incurs the following selling, general, and administration costs: Super Bookstore Selling, General, & Administration (S, G & A) Costs For the Year Ended December 31, 2010 Purchasing department expenses $ 474,500 Receiving department expenses 432,400 Shelf stocking labor expense 487,500 Customer support expense (cashiers and floor employees) 91,184 $1,485,584 1. Suppose Super Bookstore uses cost of merchandise to allocate all S, G & A costs. Prepare product line Required and total company income statements. 2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G & A costs that you propose to prepare new product line and total company income statements. Compare your results to the results in requirement 1. 3. Write a memo to Super Bookstore's management describing how the improved system might be useful for managing Super Bookstore