Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Henderson Company has three product lines: baked goods, milk and fruit juice, and frozen foods. Company has experienced net operating losses in its Milk &

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.

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

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

Operating costs (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 could identify four store support operating activities and breakdown total store operating activities by these activities as follows:

Activity-area usage (cost allocation base) Annual Activity Costs Cost Driver

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

Delivery (deliveries) $22,475 number of deliveries Shelf-stocking (hours) Shelf-stocking hours $20,200

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

Total $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&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

. In the space provided on Answers Sheet, complete the product-line profitability report for

Henderson using ABC for the allocation of store support operating costs among the three products.

1. In the space provided on Answers Sheet, complete the product-line profitability report for

Henderson using ABC for the allocation of store support operating costs among the three products.

2. What new insights does the ABC system provide to Henderson Company managers? Explain.

26. Profitability Analysis

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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Handbook Of Communication Audits For Organisations

Authors: Owen D.W. Hargie, Dennis Tourish

1st Edition

0415186420, 978-0415186421

More Books

Students also viewed these Accounting questions

Question

How can market research benefit entrepreneurs when starting up?

Answered: 1 week ago

Question

2. (1 point) Given AABC, tan A b b

Answered: 1 week ago