Question
MedcareMedcare, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments. Rick Flair, the new controller of MedcareMedcare, reported
MedcareMedcare, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments. Rick Flair, the new controller of MedcareMedcare, reported the following data for 20172017: Medcare 2017 General Supermarket Chains Drugstore Chains Mom-and-Pop Single Stores Medcare Revenues $3,706,000 $3,165,000 $1,980,000 $8,851,000 Cost of goods sold 3,604,000 3,025,000 1,806,000 8,435,000 Gross margin $102,000 $140,000 $174,000 416,000 Other operating costs 284,740 Operating income $131,260 For many years, MedcareMedcare 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 MedcareMedcare 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 MedcareMedcare: 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. MedcareMedcare'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 MedcareMedcare for this activity. The level of each activity in the three market segments and the total cost incurred for each activity in 20172017 is as follows: Activity-based Cost Data Activity Level Medcare 2017 General Mom-and- Total Cost Supermarket Drugstore Pop Single of Activity Activity Chains Chains Stores in 2017 Orders processed (number) 140 360 1,500 $80,000 Line-items ordered (number) 2,000 5,000 16,000 46,000 Store deliveries made (number) 125 325 960 70,500 Cartons shipped to stores (number) 38,000 23,000 18,000 79,000 Shelf stocking (hours) 360 190 110 9,240 Total $284,740 Requirement 1. Compute the 20172017 gross-margin percentage for each of MedcareMedcare's three market segments. (Enter the percent to two decimal places.) = Gross margin percentage Supermarket Chains = %
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