=+6-47 KKK Activity-based costing, merchandising OBJECTIVES 5, 7, 8 Cinto Ltd, a distributor of special pharmaceutical products, operates at capacity and has three main market segments:

a general supermarket chains b pharmacy chains c pharmacist-owned single-store pharmacies.

John Best, the new management accountant of Cinto, reported the following data for 2014:

1 2

3 4

5 6

7 8

A B C D E Cinto Ltd, 2014 lareneG supermarket chains chains single stores Cinto Ltd

$8 838 000 8 400 000 301 080

$136 920 seuneveR dlos sdoog fo tsoC smarginsorG Other operating costs 9 Operating profit

$1 980 000 1 800 000

$180 000

$3 150 000 3 000 000

$150 000

$3 708 000 3 600 000

$108 000 438 000 owned PharmacistPharmacy 256 Chapter 6: Activity-based costing and activity-based management M06_HORN3377_02_LT_C06.indd 256 2/09/13 3:26 PM For many years, Cinto has used gross margin percentage ((Revenue – Cost of goods sold) ÷ Revenue) to evaluate the relative profitability of its market segments. But John recently attended a seminar on activity-based costing and is considering using it at Cinto to analyse and allocate ‘other operating costs’. 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 Cinto:

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