Family Supermarkets (FS) 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:

Ordering R100 per purchase order Delivery and receipt of merchandise R80 per delivery Shelf-stocking R20 per hour Customer support and assistance 20 cents per item sold

The revenues, cost of sales, store support costs, and activity-area usage of the three product lines are:

Baked goods Milk and fruit juice Frozen products

Financial data

Revenues R57 000 R63 000 R52 000

Cost of sales R38 000 R47 000 R35 000

Store support R11 400 R14 100 R10 500

Activity-area usage (cost allocation base)

Ordering (purchase orders) 30 25 13

Delivery (deliveries) 98 36 28

Shelf-stocking (hours) 183 166 24

Customer support (items sold) 15 500 20 500 7 900

Under the simple (traditional) costing system, FS allocated support costs to products at the rate of 30% of cost of sales.

Required:

2.1 Use the ABC system to calculate the operating income for each of the products. (21)