Activity-based budgeting. (20-30 minutes) Nyborg Supermarkets, AS, is preparing its activity-based budget for January 2000 for its operating costs

(that is, its non-cost of goods purchased for resale costs). Its current concern is with its four activity areas (which are also indirect-cost categories in its product profitability reporting system):

a. Ordering—covers purchasing activities. The cost driver is the number of purchase orders.

b. Delivery—covers the physical delivery and receipt of merchandise.

The cost driver is the number of deliveries.

c. Shelf stacking—covers the stacking of merchandise on store shelves and the ongoing restacking before sale.

d. Customer support—covers assistance provided to customers, including check-out and bagging.

Assume Nyborg Supermarkets has only three product areas—soft drinks, fresh produce and packaged food. The budgeted usage of each cost driver in these three areas of the store and the January 2000 budgeted cost driver rates are as follows: mki7

REQUIRED 1. What is the total budgeted cost for each activity area in January 2000?
2. What advantages might Nyborg Supermarkets gain by using an activity-based budgeting approach over (say) an approach for budgeting operating costs based on a budgeted percentage of cost of goods sold times the budgeted cost of goods sold?

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COST DRIVER RATES JANUARY 2000 BUDGETED AMOUNT OF DRIVER USED 1999 JANUARY 2000 ACTUAL BUDGETED SOFT FRESH PACKAGED ACTIVITY AREA AND DRIVER RATE RATE DRINKS PRODUCE FOOD Ordering (per purchase order) DKr 1,000 DKr 900 Delivery (per delivery) DKr 800 DKr 820 Shelf-stacking (per hour) DKr 200 DKr 210 126 14 24 14 62 19 16 172 94 Customer support (per item sold) DKr 2.0 DKr 1.8 4,600 34,200 10,750