GY entertainment is a leading music company that manages three idol groups. GY operates at capacity and allocates selling, general, and administration (SG&A) costs to each idol group using the cost of merchandise of each idol group. GY wants to optimize the pricing and cost management of each group. GY is wondering if its accounting system is providing it with the best information for making such decisions. Team name (manager) Revenues Cost of merchandise Cost of cleaning GY entertainment Product Line Information For the year ended December 31, 2017 Wanna-Two (Mr. Trump) $3,720,480 Red Cotton (Miss Abe) Small Bang (Mr. Macron) $258,216 $2,315,360 $300,000 $300,000 $80,000 $18,250 # of purchase orders placed 2,000 1,500 500 # of deliveries received 6,000 1,700 1,100 Hours of shelf stocking time 5,000 4,000 1,000 Items sold 3,200 3,000 2,800 GY entertainment incurs the following SG&A costs: Purchasing department expense: $400,000 (cost driver: # of purchase orders placed) Receiving department expense: $440,000 (cost driver: # of deliveries received) Shelf-stocking labor expense: $430,000 (cost driver: Hours of shelf-stocking time) Customer-support expense: $90,000 (cost driver: Items sold) Required: 1. Suppose GY has used cost of merchandise to allocate all SG&A costs (i.e. OLD method). For each group, calculate operating income. 2. Use the ABC method for allocating SG&A costs (i.e. NEW method). The total amount of SG&A costs to be allocated by the NEW method is unchanged. For each group, calculate operating income. 3. The 5% of operating income (unless loss) is given to group managers (Mr. Trump, Miss Abe and Mr. Macron) as an annual bonus. Who will receive a biggest bonus check if GY entertainment switches from the OLD method to the NEW method to allocate SG&A costs? 4. The 15% of firm-level total operating income is to be paid as tax. By switching from the OLD method to the NEW method, how much more or less income tax is going to be collected this year?