5-37 Activity-based costing, merchandising. 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. Home Insert Page Layout Formulas Data Review View A B C D E 2 Pharmassist, 2020 General Supermarket Drugstore Mom-and-Pop Total for 4 Chains Chains Single Stores Pharmassist 5 Revenues $3,704,000 $3, 145,000 $1,988,000 $8,837,000 6 Cost of goods sold 3,612,000 2,990,000 1,804,000 8,406,000 7 Gross margin $ 92,000 $ 155,000 $ 184,000 431,000 8 Other operating costs 313,075 9 Operating income $ 117,925For many years, Pharmassist has used gross margin percentage to evaluate the relative profitability of a 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: 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 Stocking of customer store shelves Hours of shelf stocking 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: Home Insert Page Layout Formulas Data Review View B C D E 13 14 Activity-Based Cost Data Activity Level 15 Pharmassist, 2020 General Total Cost 16 Supermarket Drugstore Mom-and-Pop of Activity 17 Activity Chains Chains Single Stores in 2020 18 Orders processed (number 200 500 1,800 $ 87,500 19 Line-items ordered (number) 2, 100 4,800 15,600 67,500 20 Store deliveries made (number) 110 280 990 67,620 21 Cartons shipped to stores (number) 34,000 23,000 23,000 80,000 22 Shelf stocking (hours) 310 210 95 10,455 23 $313,075 quired 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 costin ation