Question 3 FS Ltd operates at capacity and decides to apply ABC analysis to two of its product lines: 'Baked goods' and 'Frozen foods'. It identifies four activities, related activity costs, and driver volumes. Activity Activity cost driver Activity cost driver volume cost Number of $9,600 120 purchase orders Ordering Number of $21,700 deliveries 350 Delivery Hours of shelf- $15,000 1,000 Shelf-stocking stocking Number of items Customer support $17,400 145,000 sold Information regarding the revenue, cost of goods sold, store support costs (overhead), and activities are as follows: Information regarding the revenue, cost of goods sold, store support costs (overhead), and activities are as follows: Baked Frozen Total goods goods Revenue $85,000 $92,000 $177,000 Cost of goods sold (direct costs only) $57,800 $69,000 $126,800 Gross margin $27,200 $23,000 $50,200 Support costs (overhead) $38,040 Activity cost driver usage Ordering (purchase orders) 130 59 Delivery (deliveries) 185 70 Shelf-stocking (hours) 210 44 Customer support (items sold) 17,400 10,100 Under its simple existing costing system, FS allocates support costs to products at the rate of 30% of the cost of goods sold. Required 1. Use the simple costing system to calculate a product-line profitability for 16 2. Use ABC system to calculate a product-line profitability for FS [18 marks] 3. What new insights does the ABC system in requirement 2) provide to FS managers? [8 marks]