5-43 Activity-based costing, activity-based management, merchandising. Pet World operates a pet supply superstore in Atlanta with three main product lines: food, toys, and accessories. Pet World allocates common selling, general, and administration (SG&A) costs to each product line using the cost of mer- chandise of each product line. Department manager salaries, while considered SG&A, are direct and are assigned directly to each product line. The company wants to optimize the pricing and cost management of each product line and is wondering whether its accounting system is providing it with the best information for making such decisions. Store manager Jason Wu gathers the following information regarding the three product lines: Toys Pet World Product Line Information for the Year Ended December 31, 2020 Food Revenues $1,600,000 $900,000 Cost of merchandise $ 900,000 $500,000 Salary of department manager $ 48,000 $ 54,000 Number of purchase orders placed 600 950 Number of boxes received 2,400 2,500 Square feet of store space 12,000 2,000 Accessories $1,000,000 $ 600,000 $ 52,000 1,500 4,500 4,000 Total $3,500,000 $2,000,000 $ 154,000 3,050 9,400 18.000 Pet World SG&A Costs for the Year Ended December 31, 2020 Purchasing department expense Receiving department expense Selling expense Rent Store manager's salary Utilities Total $ 186,000 160,500 310,000 432,000 120,000 62,000 $1,270,500 1. Prepare an income statement for Pet World, by product line and in total, allocating common SG&A ex- penses using cost of merchandise. Calculate the profit per square foot of store space for each product line. 2 Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating SG&A costs that you propose to prepare new product-line income statements. Calculate the profit per square foot of store space for each product line. Compare your results to the results in requirement 1. 3. What recommendations would you make to the store manager based on the results of the activity- based costing analysis