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 B C D E 1 2 Pharmassist, 2020 3 4 5 Revenues 6 Cost of goods sold 7 Gross margin 8 Other operating costs 9 Operating income General Supermarket Chains $3,704,000 3,612,000 $ 92,000 Drugstore Chains $3,145,000 2,990,000 $ 155,000 Mom-and-Pop Single Stores $1.988.000 1,804,000 $ 184,000 Total for Pharmassist $8,837,000 8,406.000 431,000 313.075 $117.925 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: 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: Data View Formulas B Review D E Activity Level Home Insert Page Layout A 13 14 Activity-Based Cost Data 15 Pharmassist, 2020 16 17 Activity 18 Orders processed (number) 19 Line-items ordered (number) 20 Store deliveries made (number) 21 Cartons shipped to stores (number) 22 Shelf stocking (hours) 23 General Supermarket Chains 200 2,100 Drugstore Chains 500 4,800 280 23,000 210 Mom-and-Pop Single Stores 1,800 15,600 990 23,000 95 Total Cost of Activity in 2020 $ 87,500 67,500 67,620 80,000 10,455 $313,075 110 34,000 310 uired 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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