Australian Mart (AM) operates at capacity and decides to apply ABC analysis to three product lines:

pastry and cakes, Dairy Products, and meat products. It identifies four activities and their activity cost rates as follows:

Ordering $100 per purchase order

Delivery and receipt of merchandise $ 80 per delivery

Shelf-stocking $ 20 per hour

Customer support and assistance $ 0.20 per item sold

The revenues, cost of goods sold, store support costs, the activities that account for the store support

costs, and activity-area usage of the three product lines are as follows:

Particulars Pastry and cakes Dairy Products Meat Products

Fundamentals

Revenue 57000 63000 52000

Cost of Goods sold 38000 47000 35000

Store support 11400 14100 10500

Activities (Cost

allocation base)

Ordering (purchasing

order) 30 25 13

Delivery (Deliveries) 98 36 28

Shelf-stocking (hours) 183 166 24

Customer support

(item sold) 15500 20500 7900

Under its simple costing system, AM allocated support costs to products at the rate of 30% of cost of

goods sold.

Require:

1. Use the simple/traditional costing system to conduct a product-line profitability report for AM.

2. Use the ABC system to conduct a product-line profitability report for AM.