Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are:

	Frozen Foods	Baked Goods	Fresh Produce
Sales	$ 127,000	$ 93,000	$ 173,000
Cost of goods sold	110,000	68,000	121,000

SFS estimates that store support expenses, in total, are approximately 19% of revenues.

The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are:

Activity (cost driver)	Frozen Foods	Baked Goods	Fresh Produce
Order processing (number of purchase orders)	10	47	101
Receiving (number of deliveries)	10	51	126
Shelf-stocking (number of hours per delivery)	4	0.4	4
Customer support (total units sold)	20,000	32,000	64,000

The controller estimates activity-cost rates for each activity as follows:

Order processing	$ 78	per purchase order
Receiving	110	per delivery
Shelf-stocking	14.00	per hour
Customer support	0.30	per item

Required:

1. Prepare a product-line profitability report for SFS under the current costing system.

2. Prepare a product-line profitability report for SFS using the ABC information the controller provides.

 

Transcribed Image Text:

Frozen Food Baked Goods Fresh Produce $ $ $ Operating income (loss) Operating margin (loss) % % Frozen Food Baked Goods Fresh Produce $ $ $ Operating income (loss) Operating margin (loss) % %

Answer rating: 100% (QA)

Requirement 1 Frozen foods Baked goods Fresh produce Sales 127000 93000 173000 Less Cost o... View the full answer