Exercise 2 20pts Lemar Supermarket (LS) operates at capacity and decides to apply ABC analysis to three product lines: baked goods, milk and fruit juice, and frozen foods. It identifies four activities and their activity cost rates as follows: Ordering $102 per purchase order Delivery and receipt of merchandise $78 per delivery Shelf-stocking $21 per hour Customer support and assistance $0.22 per item sold The revenues, cost of goods sold, store support costs, activities that account for the store support costs, and activity-area usage of the three product lines are as follows: Baked Goods Milk & Fruit Juice Frozen Products Financial data $59 500 $66 000 $51 000 Revenues Cost of goods sold $36 000 $48 000 $34 000 Store support $10 800 $14 400 $10 200 20 15 Activity-area usage (cost-allocation base) Ordering (purchase orders) 25 Delivery (deliveries) 90 Shelf-stocking (hours) 190 Customer support (items sold) 13 500 35 30 180 40 17 500 8 000 Under its simple costing system, Lemar allocated support costs to products at the rate of 30% of cost of goods sold. 1. Use the simple costing system to prepare a product-line profitability report for Lemar. 9pts 2 2. Use the ABC system to prepare a product-line profitability report for Lemar. 9pts 3. What new insights does the ABC system in question 2 provide to Lemar managers? 2pts Exercise 3 10pts Evsu bottles and distributes mineral water from the company's natural springs in northern Cyprus. Evsu markets two products: 1-litre disposable plastic bottles and 4-litre reusable plastic containers. 1. For 2020. Evsu marketing managers project monthly sales of 420 000 1-litre bottles and 170 000 4-litre containers. Average selling prices are estimated at $0.20 per 1-litre bottle and $1.50 per 4-litre container. Prepare a revenues budget for Evsu for the year ending December 31, 2020. 4pts 2. Evsu begins 2021 with 890 000 1-litre bottles in inventory. The vice president of operations requests that l-litre bottles ending inventory on December 31, 2021, be no less than 680 000 bottles. Based on sales projections as budgeted previously, what is the minimum number of 1- litre bottles Evsu must produce during 2021? 4pts 3. The VP of operations requests that ending inventory of 4-litre containers on December 31, 2021, be 240 000 units. If the production budget calls for Evsu to produce 1 900 000 4-litre containers during 2021, what is the beginning inventory of 4-litre containers on January 1, 2021? 2pts 3
