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Medcare,

Inc., a distributor of special pharmaceutical products, operates at capacity and has

three main market

segments. Rick Flair, the new controller of

Medcare,

reported the following data for

2020.

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(Click the icon to view the data.)For many years,

Medcare

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

Medcare

to analyze and allocate "other operating costs."

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(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:

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(Click the icon to view the activity level and cost information.)Read the requirements

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.Requirement 1. Compute the

2020

gross-margin percentage for each of

Medcare's

three market segments. (Enter the percentage to the nearest hundredth percent, X.XX%.)

		Gross margin percentage
Gross margin percentage - Supermarket Chains	=		%

Enter any number in the edit fields and then click Check Answer.

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Data Table

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

Medcare:

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.

Medcare'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

Medcare

for this activity.

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Data Table

Activity-based Cost Data	Activity Level
Medcare 2020	General		Mom-and-	Total Cost
	Supermarket	Drugstore	Pop Single	of Activity
Activity	Chains	Chains	Stores	in 2020
Orders processed (number)	225	425	1,750	$93,600
Line-items ordered (number)	1,960	4,320	15,000	63,840
Store deliveries made (number)	100	250	1,010	69,360
Cartons shipped to stores (number)	37,000	23,000	18,000	78,000
Shelf stocking (hours)	325	175	125	9,375
Total

Compute the 2020 gross-margin percentage for each of Medcare'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 $314,175 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?

Requirement 1. Compute the

2020

gross-margin percentage for each of

Medcare's

three market segments. (Enter the percentage to the nearest hundredth percent, X.XX%.)

		Gross margin percentage
Gross margin percentage - Supermarket Chains	=		%

Enter any number in the edit fields and then click Check Answer.

12

parts remaining

Clear All

Check Answer

Data Table

Medcare 2020	General Supermarket Chains	Drugstore Chains	Mom-and-Pop Single Stores	Medcare
Revenues	$3,708,000	$3,160,000	$1,992,000	$8,860,000
Cost of goods sold	3,602,000	3,010,000	1,802,000	8,414,000
Gross margin	$106,000	$150,000	$190,000	446,000
Other operating costs				314,175
Operating income				$131,825