Pipic Assignment

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Question $7,$ P$5-37($similar to$)$

Part $1$ of $16$

HW Score: $61\mathrm{.}15\%,61\mathrm{.}15$ of $100$ points

Points: $0$ of $15$

Medcare, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments. Rick Flair, the new controller of Medcare, reported the following data for $2017$ :

$($Click the icon to view the data.$)$

For many years, Medcare has used gross margin percentage to evaluate the relative profitability of its market segments

But Flair recently attended a seminar on activity$-$based costing and is considering using it at Medcare to analyze and allocate "other operating costs."

$($Click the icon to view the activities and relevant information.$)$

Data table

He meets with all the key managers and several of his operations and sales staff, and they agree that there are five key activities that drive other operating costs at Medcare:

$\backslash$table$[[$Activity Area,Cost Driver$],[$Order processing,Number of customer purchase orders$],[$Line$-$item processing,Number of line items ordered by customers$],[$Delivering to stores,Number of store deliveries$],[$Cartons shipped to store,Number of cartons shipped$],[$Stocking of customer store shelves,Hours of shelf$-$stocking$]]$

Each customer order consists of one or more line items. A line item represents a single product $($such as Extra$-$Strength Tylenol Tablets$).$ Each product line item is delivered in one or more separate cartons. Each store delivery entails the delivery of one or more cartons of products to a customer. Medcare's staff stacks cartons directly onto display shelves in customers' stores. Currently, there is no additional charge to the customer for shelf$-$stocking and not all customers use Medcare for this activity.

Requirements

Compute the $2017$ gross$-$margin percentage for each of Medcare's three market segments.

Compute the cost driver rates for each of the five activity areas.

Use the activity$-$based costing information to allocate the $$331,460$ of "other operating costs" to each of the market segments. Compute the operating income for each market segment.

Comment on the results. What new insights are available with the activity$-$based costing information?

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$041/27-651-$spts$.$