Main Street Books and Caf (MSBC) is a large city bookstore that sells books and music CDs and has a caf. MSBC operates at capacity and allocates selling, general, and administration (S, G & A) costs to each product line using the cost of merchandise of each product line. MSBC wants to optimize the pricing and cost management of each product line. MSBC is wondering if its accounting system is providing it with the best information for making such decisions. Main Street Books and Caf Product Line Information For the Year Ended December 31, 2014 Books CDs Caf Revenues $3,720,480 $2,315,360 $736,216 Cost of merchandise $2,656,727 $1,722,311 $556,685 Cost of caf cleaning $ 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 Main Street Books and Caf incurs the following selling, general, and administration costs: Main Street Books and Caf Selling, General, and Administration (S, G & A) Costs For the Year Ended December 31, 2014 Purchasing department expense $ 474,500 Receiving department expense 432,400 Shelf stocking labor expense 487,500 Customer support expense (cashiers and floor employees) 91,184 $1,485,584 1. Suppose MSBC uses cost of merchandise to allocate all S, G & A costs. Prepare product line and total company income statements. 2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G & A costs that you propose to prepare new product line and total company income statements. Compare your results to the results in requirement 1. 3. Write a memo to MSBC management describing how the improved system might be useful for managing the store.