Eslite Bookstore is a large city bookstore that sells books and music CDs, and has a cafe. It operates at capacity and allocates selling, general and administrative costs to each product line using the cost of merchandise of each product line. Eslite Bookstore wants to optimize the pricing and cost management of each product line. It is wondering if its accounting system is providing the best information for making such decisions. Eslite Bookstore, Product line information For the year ended 31 December 2021 Revenues Cost of merchandise Cost of caf cleaning Books CDs Caf $3,720,480 $2,315,360 $736,216 $2,656,727 1,722,311 $556,685 - $18,250 Number of purchase orders placed 2,800 2,500 2,000 Number of deliveries received 1,400 1,700 1,600 Hours of shelf-stocking time 15,000 14,000 10,000 Items sold 124,016 115,768 368,108 Ealite Bookstore, Selling, General & Administrative (SG&A) costs For the year ended 31 December 2021 Direct materials $32,000 Direct professional hours ($50/hour) 1,000 Purchasing department expenses $474,500 Receiving department expenses 432,400 Shelf-stocking labor expense 487,500 Customer support expenses (cashiers and floor employees) 91,184 Total $1,485,584 Requirements 1. Suppose Eslite Bookstore uses cost of merchandise to allocate all SG&A costs. Compute the profit of each product line and total company. Calculation should be rounded to two decimal places. (5 marks) 2. Comment on the allocation method of (1) and develop an improved method for allocating SG&A costs to the three product lines based on information available. Explanations are required. Calculate the profit of each product line and total company using the proposed allocation method. Calculation should be rounded to two decimal places. (10 marks) 3. Write a memo to Elite Bookstore's management describing the difference in product line profit between requirements 1 and 2 and how the information may be useful for product line decisions. No calculations are required