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Part $1$

Carrefour is a grocery company with stores throughout Spain. Suppose the company is planning an expansion of its store in central Madrid. A preliminary analysis has shown the packaged food department to be the most$$ profitable, so the company plans to increase its space the most. Assume that the Madrid store has just three$$ departments: produce, packaged$$ food, and meat. The most recent annual report for the store showed sales of euro $3$ comma $550$ comma $100,$ which generated a gross margin of euro $950$ comma $100.$ Sales and gross margins of the three departments were as$$ follows:

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Part $1$

In addition to cost of products$$ sold, the store has euro $1$ comma $170$ comma $000$ of support$$ costs, so operating income is euro $950$ comma $100-$ euro $1$ comma $170$ comma $000=$ euro $(219$ comma $900).$ Carrefour currently uses an accounting system that uses cost of products sold as a$$ cost$-$allocation base for allocating support costs. Miguel Flores$,$ controller of Carrefour$,$ recently attended a seminar on$$ activity$-$based costing. He suggests that Carrefour management should undertake further analysis before deciding which product gets the largest increase in space in the expansion. He has asked$$ you, his$$ assistant, to lead this analysis.

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Part $1$

Requirement $1.$ The starting point of your analysis is to determine product profitability under the existing cost accounting system. Compute the operating income and the operating income as a percent of sales for each department using Carrefour$\text{'}$s existing system. Use this information to assess the relative profitability per euro of sales of each of the three departments.

Start by determining the formula needed to compute indirect cost$$ rates, then enter the amount to calculate the indirect cost rate under the$$ company's existing cost system. $($Round the rate to two decimal$$ places, $.$XX$.)$

Part $2$

$/$

$$

$=$

Indirect cost allocation rate

Total indirect support

$/$

$=$

$$

Part $3$

Now compute the operating income and the operating income as a percent of sales for each department using Carrefour$\text{'}$s existing system. $($Use a minus sign or parentheses to show an operating loss or an operating loss as a percent of sales. Round the operating income$($loss$)$ as a percent of sales to two decimal$$ places, X$.$XX$\%.)$

Packaged

Produce

Food

Meat

Revenues

$697,700$

$1,270,000$

$1,582,400$

Cost of products sold

$520,000$

$780,000$

$1,300,000$

Gross margin

$177,700$

$490,000$

$282,400$

Allocation of support costs

Operating income $($loss$)$

Operating income $($loss$)$ as a

percent of sales

$\%$

$\%$

$\%$

Part $4$

Use the information to assess the relative profitability per euro of sales of each of the three departments.

Under the existing cost system the

$$

department appears to be the most profitable relative to the amount of sales from that department and the

$$

department appears to be the least profitable relative to the amounts of sales.

Part $5$

Requirement $2.$ Using these data and$$ activity$-$based costing, calculate the operating income and operating income as a percent of sales for each product.$($For example, note that each purchase order costs euro $120$ comma $000/6$ comma $000=$ euro $20$ to$$ process.$)$

Begin by determining the indirect cost rate per activity using the same formula labels as you determined in requirement $1.$ The calculation of the indirect cost rate to allocate ordering costs$($the cost per purchase$$ order$)$ has been given to you as an example. $($Round the rate to two decimal$$ places, $.$XX$.)$

Part $6$Part $7$Part $8$

Ordering

$120,000$

$/$

$6,000$

$=$

$20$

euros per order

Delivery

$/$

$=$

$$

Shelf$-$stocking

$/$

$=$

Customer support

$/$

$=$

Part $9$

Now compute the operating income and the operating income as a percent of sales for each department using the$$ activity$-$based data. $($Complete all answer boxes. Use a minus sign or parentheses to show an operating loss or an operating loss as a percent of sales. Round the operating income$($loss$)$ as a percent of sales to two decimal$$ places, X$.$XX$\%.)$

Packaged

Produce

Food

Meat

Revenues

$697,700$

$1,270,000$

$1,582,400$

Cost of products sold

$520,000$

$780,000$

$1,300,000$

Gross margin

$177,700$

$490,000$

$282,400$

Allocation of support costs:

Ordering

Delivery

Shelf$-$stocking

Customer support

Produce monitoring

Operating income $($loss$)$

Operating income $($loss$)$ as a

percent of sales

$\%$

$\%$

$\%$

Part $10$

Under the ABC cost system the

$$

packaged food

produce

meat

department appears to be the most profitable relative to the amount of sales from that department and the

$$

packaged