Pawsh operates a pet supply superstore in Atlanta with three main product Store manager Jordan Baxter gathers the following information regarding lines: food, toys, and accessories, Pawsh allocates common selling the three product lines: general, and administration (SG&A) costs to each product line using the Click the icon to view the product line information) cost of merchandise of each product line. Department manager salaries, while considered SG&A, are direct and are assigned directly to each For 2020, Pawsh budgets the following seling, general, and product line. The company wants to optimize the pricing and cost administration costs: management of each product line and is wondering whether its accounting Click the icon to view the selling. general, and administration costs.) system is providing it with the best information for making such decisions. Read the requirements Caicuae tne pront per square 100t or store space for each product une. Start by determining the total selling general, and administrativo (SG&A) expenses allocated to each department and in total when allocating common SG&A expenses using cost of merchandise Food Toys Accessories Total Direct SG&A costs: Department manager salaries 44000 70000 54000 168000 797576 598182 598182 1993940 Common SG&A costs allocated 841576 Total SG&A 668182 652182 2161940 In this step, prepare an income statement for Pawsh, by product line and in total, allocating common SG&A expenses using cost of merchandise. In the following step calculate the profit per square foot of storo space for each product line. (Uso parentheses or a minus sign to enter losses. Round the profit (loss) per square foot to the nearest cent, $XXX) Powsh Budgeted Income Statement For the Year Ended December 31, 2020 Food Toys Revenues 3060000 2295000 2295000 7650000 1800000 Cost of merchandise 1350000 1350000 Gross margin 4860000 12150000 797578 Seling general, & administrative costs 598182 1993940 4062424 10156060 Operating Income (los) Accessories Total 4500000 3645000 3845000 598182 3046818 3046818 Pawsh operates a pet supply superstore in Atlanta with three main product store manager Jordan Baxter gathers the following information regarding Food Toys Accessories Total 3060000 2295000 2295000 Revenues 7650000 1800000 1350000 1350000 4500000 Cost of merchandise 4860000 Gross margin 3645000 3645000 12150000 797576 598182 598182 1993940 Selling general, & administrative costs 4062424 3046818 3046818 10156060 Operating income (loss) 11900 Square feet of store space 2900 5000 341.38 Profit (loss) per square foot 1050.63 609.36 Requirement 2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating SG&A costs that you propose to prepare new product-line income statements Calculate the profit per square foot of store space for each product line. Compare your results to the results in requirement 1. An improved method for allocating costs to the throa product lines is activity based costing this method is more appropriate because of the variety of products and large dollar value of indirect costs Begin by identifying the most appropriate cost driver for each cost category. Select the best explanation for the use of each cost driver. (Use revenue dollars as the cost driver if the expense is not tied to any of the other cost drivers.) Expense Cost driver Explanation This department expense increases with the number of purchase Purchasing department expenso Number of purchase orders orders issued This department expense increases with the number of boxes Receiving department expense Number of boxes received received This department expense increases with the number of revenue Seling expense Revenue dollars dollars received Rent Square foot of store space This expense is rolated to the number of square feet occupied. Store manager's salary Square feet of store space This expense is related to the number of square foot occupled. This department expense increases with the number of labor Us Labor dollars dollars spent Pawsh operates a pet supply superstore in Atlanta with three main product Store manager Jordan Baxter gathers the following information regarding separtment expurse creases wie number of a Utilities Labor dollars dollars spent Calculate the each of the cost driver rates need to allocate common SG&A costs under the method you have identified for this requirement. (Round all dollar amounts to the nearest cent, $X.XX. Enter any rates as a percentage to two decimal places, X.XX.) Cost Total quantity of cost driver Cost driver rate 217600 - 3200 68 per purchase order Purchasing 211600 9200 - Receiving 23 per box 765000 - 7650000 101% of revenue S Selling 514800 - 19800 - Rent 26 per square foot 299500 - 19800 = Store manager's salary 11.59 per square foot 55440 - 168000 = Utilities 33 per department Start by determining the total selling, general, and administrative (SG&A) expenses allocated to each department and in total when allocating common SG&A expenses using the cost drivers you identified above. (Use the cost driver rate amounts you determined in the preceding step for your allocation computations, Round all amounts you enter into the table below to the nearest whole dollar.) Food Toys Accessories Total Direct SG&A costa: Department manager salaries Common SG&A costs allocated: Purchasing department exponse Receiving department exponse Selling expense Rent Store manager's salary Utilities Total SGA In this step, prepare an income statement for Pawsh, by product line and in total, allocating common SG&A expenses using the method you proposed in this requirement. In the following step calculate the profit per souare foot of store space for each product line. (Use parentheses or a minus sian to enter In this step, prepare an income statement for Pawsh, by product line and in total, allocating common SG&A expenses using the method you proposed in this requirement . In the following step calculate the profit per square foot of store space for each product line. (Use parentheses or a minus sign to enter losses. Round the profit (loss) per square foot to the nearest cent, $X.XX.) Pawsh Budgeted Income Statement For the Year Ended December 31, 2020 Food Toys Accessories Revenues Total DO Cost of merchandise Gross margin Selling, general, & administrative costs Operating income (loss) Square feet of store space Proft (los) per square foot Compare your results to the results in requirement 1 on a profitloss per square foot basis. Review the income statement from requirement 1. Comparing the product line income statements in requirements 1 and 2, it appears that only Toys is/are more profitable per square foot and Food and Accessories is/are loss profitable per square foot under the system used in requirement 2 compared to the simple system. These results are the same The reason is that the departments use differing amounts of SG&A resources relative to its merchandise costs Pawsh operates a pet supply superstore in Atlanta with three main product 3 Store manager Jordan Dame your de - Pawsh Budgeted Income Statement For the Year Ended December 31, 2020 Food Toys Accessories Total Revenues 1881ST DO Cost of merchandise Gross margin Selling general, & administrative costs Operating income (loss) Square foot of store space Profit (los) per square foot Compare your results to the results in requirement 1 on Review the income statement from requirement 1 a broad costing Comparing the product line income statements in requli a process costing is/are more profitable per square foot and Food and Accessories is/are less profitable per ment 2 compared to the simple system. These results are the same The reason is that the departme a simple costing des relative to its merchandise costs Requirement 3. What recommendations would you ma an activity-based costing (ABC) ts of the activity-based costing analysis? The recommendation is that the organization switch to method. With this method, the product lines are assigned indirect costs based on their The current accounting technique because it By adopting management can evaluate the costs of operating the three product lines and make more informed pricing and product mix decisions Food Revenues UT Cost of merchandise Gross margin Selling general, & administrative costs Operating income (loss) Square feet of store space Profit (loss) per square foot Compare your results to the results in requirement 1 on a profitloss per square foot basis. Review the income statement from a siroment1 ys Comparing the product line in is/are more profitable and Food and Accessories uirement 2 compared to the simple systu consumption of the activities that give rise to the costs results are the same The ources relative to its merchandise costs relative cost of merchandise Requirement 3. What recom isults of the activity-based costing analys relative sales revenue The recommendation is that d. With this method, the product lines are indirect costs based on their The current accounting technique because it By adopting management can evalu operating the three product lines and make more informed pricing and product mix decisions Revenues Cost of merchandise Gross margin Selling, general, & administrative costs Operating income (loss) Square feet of store space Profit (loss) per square foot Compare your results to the results in requirement 1 on a profit/loss per square foot basis. Review the income statement from requirement 1. ears that only Toys ystem used in requireme masks the lower cost of merchandise of one or more departments unts of SG&A resources ar based on the results of masks the lower profitability of one or more departments masks the lower revenues of one or more department method. With The current accou because it By adopting operating the three product lines and make more informed pricing and product mix decisions. general, and administration (SG&A) costs to each product line using cost of merchandise of each product line. Department manager salaries, while considered SG&A, are direct and are assigned directly to each product line. The company wants to optimize the pricing and cost management of each product line and is wondering whether its accounting system is providing it with the best information for making such decisions. (Click the icon For 2020, Pawsh budgets the following selling, genera administration costs: (Click the icon to view the selling, general, and adr Read the requirements Cost of merchandise Gross margin Selling, general, & administrative costs Operating income (loss) Square feet of store space Profit (loss) per square foot Compare your results to the results in requirement 1 on a profit/loss per square foot basis. Review the income statement from requirement 1. Comparing the product line income statements in requirements 1 and 2, it appears that only Toys Is/are more profitable p and Food and Accessories is/are less profitable per square foot under the system used in requirement 2 compared to the simple system results are the same. The reason is that the departments use differing amounts of SG&A resources relative to its merchandise costs he results of the activity-based costing analysi accurately considers the activity usage lethod. With this method, the product lines are assumes all indirect costs are driven by the dollar amount of merchandise sold current accounting technique management can evalu By adopting operating the three product lines and make more informed pricing and product mix decisions er square foot basis. 2, it appears that only To e profitable per der the system used in rec ? simple system ering amounts of SG&A res ABC andise costs e manager based on the re broad costing osting analysis methc process costing oduct lines are a The curr simple costing because it By adopting nd product mix decisions. management can evaluat oys, and accessories, Pawsh allocates common selling, administration (SG&A) costs to each product line using the handise of each product line. Department manager salaries, ered SG&A, are direct and are assigned directly to each The company wants to optimize the pricing and cost the three product lines: (Click the icon to view the product line information.) For 2020, Pawsh budgets the following selling, general, and administration costs: ptionc Data Table Pawsh ng in ot =) Product-Line Information for the Year Ended December 31, 2020 Food Toys Accessories Total Revenues $ 3,060,000 $ 2,295,000 $2,295,000 $ 7,650,000 Cost of merchandise $ 1,800,000 $1,350,000 $ 1,350,000 $4,500,000 Salary of department manager $ 44,000 $ 70,000 $ 54,000 $ 168,000 Number of purchase orders placed 640 960 1,600 3,200 Number of boxes received 1,840 6,440 9,200 Square feet of store space 11,900 2,900 5,000 19,800 vo 920 buare foc al These her Print Done igned Osts uase OTTO OTOMOCOTES TO because it By adopting the three product lines and make more informed nrinin and dirt miy darlinn management can evaluate the costs Oroduct line. Department manager salaries, direct and are assigned directly to each ants toontimize the pricing and cost line bes Data Table For 2020, Pawsh budgets the following selling, gene administration costs: Jeneral, and Pawsh SG&A Costs ative for the Year Ended December 31, 2020 217,600 Purchasing department expense Receiving department expense Selling expense 211,600 765,000 result Rent Store manager's salary t fror 514,800 229,500 55,440 Utilities incom islar Total $ 1,993,940 more profitabl the simple sy reasa Irchandise cos nmend d costing ana Print Done the ol product lines because it