Medassist, Inc. a distributor of special pharmaceutical products, operates at capacity and has three main market segments (a. General supermarket chains, b. Drugstore chains, c. Mom-and-pop single-store pharmacies). Rick Flair, the new controller of Medassist, reported the following data for 2014:

	General		Mom-and-
	Supermarket	Drugstore	Pop Single
Medassist 2014	Chains	Chains	Stores	Medassist
Revenues	$3,718,000	$3,190,000	$1,978,000	$8,886,000
Cost of goods sold	3,598,000	2,990,000	1,808,000	8,396,000
Gross margin	$120,000	$200,000	$170,000	490,000
Other operating costs				312,060
Operating income				$177,940

For many years, Medassist has used gross margin percentage (Revenue Cost of Goods Sold) / Revenue)..to evaluate the relative profitability of its market segments. But Flair recently attended a seminar on activity-based costing and is considering using it at Medassist to analyze and allocate "other operating costs."

He meets with all the key managers and several of his operations and sales staff, and they agree that there are five key activities that drive other operating costs at Medassist:

Activity Area	Cost Driver
Order processing	Number of customer purchase orders
Line-item processing	Number of line items ordered by customers
Delivering to stores	Number of store deliveries
Cartons shipped to store	Number of cartons shipped
Stocking of customer store shelves	Hours of shelf-stocking

Each customer order consists of one or more line items. A line item represents a single product (such as Extra-Strength Tylenol Tablets). Each product line item is delivered in one or more separate cartons. Each store delivery entails the delivery of one or more cartons of products to a customer.

Medassist's staff stacks cartons directly onto display shelves in customers' stores. Currently, there is no additional charge to the customer for shelf-stocking, and not all customers use Medassist for this activity.

The level of each activity in the three market segments and the total cost incurred for each activity in

2014 is as follows:

Activity-based Cost Data	Activity Level
Medassist, 2014	General		Mom-and-	Total Cost
	Supermarket	Drugstore	Pop Single	of Activity
Activity	Chains	Chains	Stores	in 2014
Orders processed (number)	225	425	1,750	$93,600
Line-items ordered (number)	2,100	4,800	15,600	67,500
Store deliveries made (number)	125	275	1,050	65,250
Cartons shipped to stores (number)	36,000	26,000	13,000	75,000
Shelf stocking (hours)	350	175	105	10,710
				$312,060

1. Compute the 2014 gross-margin percentage for each of Medassists three market segments.

2. Compute the cost driver rates for each of the five activity areas.

3. Use the activity-based costing information to allocate the $312,060 of other operating costs to each of the market segments. Compute the operating income (loss) for each market segment.

4. Comment on the results. What new insights are available with the activity-based costing information?