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:

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

Require:

1. Elaborate development, challenges and application of activity-based costing in detail (500 words; minimum five references)

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

3. Use the ABC system to prepare a product-line profitability report for AM.

4. What new insights does the ABC system in requirement provide to AM managers (300 words)?

5. ABC system motivates sustainability and better decision making in organization would you agree? Justify (500 words; minimum five references).

Particulars Pastry and cakes Dairy Products Meat Products 63000 57000 38000 52000 35000 47000 11400 14100 10500 Fundamentals Revenue Cost of Goods sold Store support Activities (Cost allocation base) Ordering (purchasing order) Delivery (Deliveries) Shelf-stocking (hours) Customer support (item sold) 30 25 13 98 36 28 183 166 24 15500 20500 7900