Pharmahelp, 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 Pharmahelp, reported the following data for 2014

	General Supermarket Chains	Drugstore Chains	Mom and Pop Single Stores	Pharmahelp
Revenues	3,708,000	3,150,000	1,980,000	8,838,000
Cost of Goods Sold	3,600,000	3,000,000	1,800,000	8,400,000
Gross Margin	108,000	150,000	180,000	438,000
Other Operating Costs				301,080
Operating Income				136,920

For many years, Pharmahelp 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 activitybased costing and is considering using it at Pharmahelp 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 Pharmahelp:

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. Pharmahelps 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 Pharmahelp 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

	General Supermarket Chains	Drugstore Chains	Mom and Pop Single Stores	Total Cost of Activity
Orders Processed	140	360	1,500	80,000
Line-Items Ordered	1,960	4,320	15,000	63,840
Store Deliveries Made	120	360	1,000	71,000
Cartons Shipped to Stores	36,000	24,000	16,000	76,000
Shelf Stocking (hours)	360	180	100	10,240
				301,080

1. Compute the 2014 gross-margin percentage for each of Pharmahelps 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 $301,080 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?