Rory Gilmore is the CEO of Stars Hollow Inc., which distributes consumer healthcare products including nutrition supplements, OTC pharmaceuticals, and personal care products to various market segments. Rory has worked for Stars Hollow from the beginning and is proud of the company's growth and success. She has worked diligently on developing supply chain channels and fostering relationships with her various market segments. However, as Stars Hollow has grown, Rory has come to realize that she doesn't understand the profitability of the company in the detail that she desires. Without this understanding, Rory believes that she is not well equipped to try to improve profitability and strategize for the future. Rory has always been an outgoing person (she takes after her mother Lorelai), and she has tried to focus on customer service. As a result, she really enjoys working with the independent stores. She feels that this is a market segment that is often overlooked by the bigger consumer health care distributors. However, Rory is not sure if this market segment is the most lucrative. Rory has reached out to you for your help. You both took managerial accounting together, but Rory did not focus on the material as well as you did. She is hoping that you can advise her on her business. You think that this is a great opportunity for you to put your managerial accounting skills to work in an advisory role. Knowing the power of managerial accounting data, you have asked Rory to put together some sales and cost data by market segment. You also specifically asked Rory to talk with her employees to get a handle on what activities are driving costs. She explained to you that a customer places an order for one or more various product lines.

A product line is a single product like Pantene Pro V Shampoo. Each product line is delivered in one or more separate boxes depending on the size of the purchase order. Stars Hollow employees deliver the boxes and put the product on the customer shelves. Each delivery includes one or more boxes of product to the customer. Rory is really proud of serving the customers and so she does not charge the customer for stocking the shelves but luckily not all the customers take advantage of this service. Rory has provided you the data you requested in Tables 1 - 3. Rory is anxious to meet with you to get your insight. In preparation for the meeting with Rory, you should prepare cogent answers to the following questions, draw relevant insights and provide any supporting exhibits and/or graphs that you believe will illuminate your analysis. You should use Excel for your analyses. In your advisory role, you need to prepare for your meeting with Rory by providing a professional analysis. REQUIRED QUESTIONS 1. Rory has been assessing the profitability of each market segment using gross margin percentage. Compute the gross margin percentage for each of the market segments. 10 points 2. Rory wants to try to allocate operating costs to each market segment but she is not confident in her managerial accounting skills. She really wants to keep it simple so she has asked you to consider allocating operating costs using cost of goods sold as the driver. Calculate the allocation rate. Allocate the operating costs using cost of goods sold as the allocation base and compute the operating income of each market segment. 20 points 3. Use the activity-based costing information to calculate the allocation rates. Allocate the operating costs to each of the market segments using activity-based costing and compute the operating income of each market segment. 25 points 4. Based on all of the data you were provided and your analyses, what insights have you gained on the profitability of each market segment? Based on your analyses in the above questions, provide recommendations to Rory to help improve the profitability of Stars Hollow. Be specific and note the benefits, costs and potential risks to the recommendations that you are proposing. 35 points