Data for the next 2 questions: Henderson Company has three product lines: baked goods, milk and fruit juice, and frozen foods. Company has experienced net operating losses in its Milk & Fruit Juice line during the last few periods. Company management thinks that the store will improve its profitability if it discontinued the Milk & Fruit Juice line. For product line profitability analysis purposes, currently company is allocating operating expenses as a percentage of sales dollars which approximately is 30% of sales dollar.

Baked Goods Milk and Fruit Juice Frozen Products

Sales Revenues $89,250 $99,000 $76,500

Cost of goods sold $54,000 $72,000 $51,000

Operating expense (30% of sales revenues) $26,775 $29,700 $22,950

Profit Margin $8,475 ($2,700) $2,550

Profit Margin Ratio 9.5% -2.7% 3.3%

However, Rose, the new accountant who is a graduate of CSU, believes that not every sales dollar requires or uses the same amount of store support activities. She believes that company should look for other means for the allocation of store operating costs among the product lines such as ABC. Based on her preliminary investigation and analysis, she was able to identify four store support operating activities and breakdown total store operating activities by these activities as follows: Activities: Annual Activity Costs Cost Driver

Ordering (purchase orders) $12,600 number of purchase orders

Delivery (deliveries) $22,475 number of deliveries

Shelf-stocking (hours) $20,200 shelf-stocking hours

Customer support (items sold) $24,150 number of units sold

$79,425

Rose also has compiled the following annual data on usage of store support activities by each product line: Activity-area usage (cost allocation base) Baked Goods Milk and Fruit Juice Frozen Products

Ordering (purchase orders) 25 20 15

Delivery (deliveries) 90 35 30

Shelf-stocking (hours) 190 174 40

Customer support (items sold) 13,500 18,450 8,300

1. Complete the product-line profitability report for Henderson Company on the Answers using ABC for the allocation of store support operating expenses among the three products. 2. What new insights does the ABC system provide to Henderson Company managers? Explain.

	Baked Goods	Milk and Frruit Juice	Frozen Prodcuts
Sales Revenues	$89,250	$99,000	$76,500
Cost Of Goods Sold	$54,000	$72,000	$51,000
Gross Profit
Operation Expenses:
Ordering
Delivery
Self-stocking
Customer Support
Total Operating Expenses
Operating Income

Profit Margin Ratio