Pharmassist, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments:
a. General supermarket chains
b. Drugstore chains
c. Mom-and-pop single-store pharmacies
Rick Flair, the new controller of Pharmassist, reported the following data for 2020.

For many years, Pharmassist 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 Pharmassist to analyze 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 Pharmassist:

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. Pharmassist’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 Pharmassist for this activity. The level of each activity in the three market segments and the total cost incurred for each activity in 2020 is as follows:

Required

1. Compute the 2020 gross-margin percentage for each of Pharmassist’s three market segments.
2. Compute the cost driver rates for each of the five activity areas.
3. Use the activity-based costing information to allocate the $313,075 of “other operating costs” to each of the market segments. Compute the operating income for each market segment.
4. Comment on the results. What new insights are available with the activity-based costing information?

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Home Insert 1 2 Pharmassist, 2020 3 4 5 Revenues 6 Cost of goods sold 7 Gross margin 8 Other operating costs 9 Operating income A Page Layout Formulas Data B General Supermarket Chains $3,704,000 3,612,000 $ 92,000 Review C View Drugstore Chains $3,145,000 2,990,000 $ 155,000 D Mom-and-Pop Single Stores $1,988,000 1,804,000 $184.000 E Total for Pharmassist $8,837,000 8,406,000 431,000 313,075 $ 117,925