#6.2

Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are:

	Frozen Food			Baked Goods			Fresh Produce
Sales	$ 126,000			$ 98,000			$ 165,000
Cost of goods sold		110,000			72,000			115,000

SFS estimates that store support expenses, in total, are approximately 14% of revenues.

The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are:

Activity (cost driver)	Frozen Food		Baked Goods		Fresh Produce
Order processing (number of purchase orders)	11		43		107
Receiving (number of deliveries)	9		56		126
Shelf-stocking (number of hours per delivery)	4		0.2		7
Customer support (total units sold)	27,000		40,000		80,000

The controller estimates activity-cost rates for each activity as follows:

Order processing	$	80	per purchase order
Receiving		108	per delivery
Shelf-stocking		15.00	per hour
Customer support		0.11	per item

Required:
1.	Prepare a product-line profitability report for SFS under the current costing system. (Loss amounts should be indicated by a minus sign. Round operating margin (loss) to 2 decimal places (i.e. .2134 should be entered as 21.34%).)

2.	Prepare a product-line profitability report for SFS using the ABC information the controller provides. (Loss amounts should be indicated by a minus sign. Round operating margin (loss) to 2 decimal places (i.e. .2134 should be entered as 21.34%). Round your answers to nearest whole dollar.)

Frozen Food Baked Goods F Fresh Produce Operating income (loss) Operating margin (loss) 0 0 0 0