Kemas Designs owns several home furnishings stores. In each store, consultations, if needed, are undertaken by...

  
 
 

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Kemas Designs owns several home furnishings stores. In each store, consultations, if needed, are undertaken by specialists, who also visit potential customers in their homes, using specialist software to help customers realize their design objectives. Customers visit the store to make their selections from the wide range of goods offered, after which sales staff collect payment and raise a purchase order. Customers then collect their self- assembly goods from the warehouse, using the purchase order as authority to collect. Administration staff process purchase order and also arrange consultations. Each store operates absorption costing system. Costs other than cost of goods sold are apportioned on the basis of sales floor area. Results for one of Kemas's store for the last three months are as follows: Department Kitchen Bedroom Dining Room Total RM RM RM Sales 210,000 112,500 Cost of goods sold 63,000 37,500 Other Costs Profit RM 440,000 762,500 176,000 276,500 130,250 81,406 113,968 325,624 16,750 (6,406) 150,032 160,376 The management accountants of Kemas are concerned that the bedroom department of the store has been showing a loss for some time, and is considering a proposal to close the bedroom department in order to concentrate on the more profitable kitchen and dining room departments. He has found that other costs for this store for the last three months are as follow: Sales staff wages Consultation staff wages Warehouse staff wages Administration staff wages RM Employees 64,800 12 4 6 4 24,960 30,240 30,624 General overheads (electricity, rents, etc.) 175,000 325,624 He has also collected the following information for the last three months: Department Number of items sold Purchase orders Kitchen Bedroom Dining Room 1,000 1,500 1,000 900 Floor area (square metres) 16,000 10,000 Number of consultations 798 200 4,000 2,500 14,000 250 The management accountant believes that he can use this information to review the store's performance in the last three months from an activity-based costing (ABC) perspective. Required: a) Produce a profit statement using activity-based costing from the information provided. (13 marks) b) Evaluate and discuss the proposal to close the bedroom department. (6 marks) c) Discuss the advantages and disadvantages that may arise for Kemas from introducing activity-based costing in its store. Kemas Designs owns several home furnishings stores. In each store, consultations, if needed, are undertaken by specialists, who also visit potential customers in their homes, using specialist software to help customers realize their design objectives. Customers visit the store to make their selections from the wide range of goods offered, after which sales staff collect payment and raise a purchase order. Customers then collect their self- assembly goods from the warehouse, using the purchase order as authority to collect. Administration staff process purchase order and also arrange consultations. Each store operates absorption costing system. Costs other than cost of goods sold are apportioned on the basis of sales floor area. Results for one of Kemas's store for the last three months are as follows: Department Kitchen Bedroom Dining Room Total RM RM RM Sales 210,000 112,500 Cost of goods sold 63,000 37,500 Other Costs Profit RM 440,000 762,500 176,000 276,500 130,250 81,406 113,968 325,624 16,750 (6,406) 150,032 160,376 The management accountants of Kemas are concerned that the bedroom department of the store has been showing a loss for some time, and is considering a proposal to close the bedroom department in order to concentrate on the more profitable kitchen and dining room departments. He has found that other costs for this store for the last three months are as follow: Sales staff wages Consultation staff wages Warehouse staff wages Administration staff wages RM Employees 64,800 12 4 6 4 24,960 30,240 30,624 General overheads (electricity, rents, etc.) 175,000 325,624 He has also collected the following information for the last three months: Department Number of items sold Purchase orders Kitchen Bedroom Dining Room 1,000 1,500 1,000 900 Floor area (square metres) 16,000 10,000 Number of consultations 798 200 4,000 2,500 14,000 250 The management accountant believes that he can use this information to review the store's performance in the last three months from an activity-based costing (ABC) perspective. Required: a) Produce a profit statement using activity-based costing from the information provided. (13 marks) b) Evaluate and discuss the proposal to close the bedroom department. (6 marks) c) Discuss the advantages and disadvantages that may arise for Kemas from introducing activity-based costing in its store.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below a Profit Statement Using ActivityBased Costing Sales Kitchen RM112500 Bedroom RM440000 Dining Room RM762500 Total RM1315000 Cost of Goods S... View the full answer