Better and faster (B&F), a market follower in the internet grocery retailing industry established four years ago, was hoping to grasp the market opportunities of online shopping which has becoming fashionable and increasingly popular among todays consumers. To be competitive in the market, the company has been expanding quickly and investing substantially in support services to improve its service quality hoping to acquire more market shares.

Currently, B&F operates three departments: meat and seafood, packaged food and drinks and vegetables and fruits. The revenue and cost of sale for the first half year of 20X6 were as follow.

	Meat and sea food	Packaged food and drinks	Vegetables and fruits
	$	$	$
Revenue	360,000	850,000	480,000
Cost of sale	230,000	600,000	300,000

Total operating support costs were $339,000. B&F currently uses cost of sale as the base to apportion the support services costs. However, the company is considering that activity-based costing (ABC) may be more appropriate based on the following information.

	$	Allocation basis
Order handling	68,500	No. of orders
Customer service	115,500	No. of inquiries
Rent of warehouse	30,000	Occupied floor area (m)
Packing and delivery	85,000	Packing and delivery hours
Computer system maintenance	40,000	Hours provided

Total 339,000

	Meat and sea food	Packaged food and drinks	Vegetables and fruits
No. of orders	165	355	165
No. of inquiries	100	45	55
Occupied floor area (m)	70	150	80
Packing and delivery hours	223	2,168	1,009
Hours provided	65	55	80

Required

1. Calculate the operating profit for the three departments using the current traditional allocation method.
2. Calculate the operating profit for the three departments using ABC method to apportion the operating support costs.
3. state the main difference between the above two methods of assigning overheads.

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