Medassist, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments. Rick Flair, the new controller of Medassist, reported the following data for 2020. (Click the icon to view the data.) For many years, Medassist has used gross margin percentage 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." (Click the icon to view the activities and relevant information.) The level of each activity in the three market segments and the total cost incurred for each activity in 2020 is as follows: (Click the icon to view the activity level and cost information.) Read the requirements. Medassist 2020 Medassist General Supermarket Drugstore Mom-and-Pop Chains Chains Single Stores $ 3,714,000 $ 3,140,000 $ 1,986,000 $ 3,598,000 3,035,000 1,796,000 Revenues 8,840,000 8,429,000 Cost of goods sold $ 116,000 $ 105,000 $ 190,000 Gross margin 411,000 289,775 Other operating costs $ 121,225 Operating income 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. Activity-based Cost Data Activity Level Medassist 2020 General Mom-and- Total Cost Pop Single of Activity Supermarket Chains Drugstore Chains Stores in 2020 140 360 Activity Orders processed (number) Line-items ordered (number) Store deliveries made (number) Cartons shipped to stores (number) 1,500 $ 16,000 80,000 44,960 2,040 4,440 100 325 1,005 74,360 34,000 24,000 22,000 80,000 10,455 Shelf stocking (hours) 310 210 95 $ 289,775 Total 1. Compute the 2020 gross-margin percentage for each of Medassist's 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 $289,775 of "other operating costs" to each of the market segments. Compute the operating income for each market segment. 4. Comment on the results. What new insights are available with the activity-based costing information
