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Studemeir Paint & Floors (SPF) has experienced net operating losses in its Other Flooring Products line during the last few periods. SPFs management team thinks

Studemeir Paint & Floors (SPF) has experienced net operating losses in its Other Flooring Products line during the last few periods. SPFs management team thinks that the store will improve its profitability if it discontinues the Other Flooring Products line. The operating results from the most recent period are:

Paint and Paint Supplies Carpet Other Flooring Products
Sales $ 322,600 $ 217,900 $ 168,900
Cost of goods sold 167,000 155,000 136,250

SPF estimates that store support expenses are approximately 24% of revenues.

Harish Rana, SPFs controller, states that while every sale has one purchase order, not every sales dollar requires or uses the same amount of store support activities. He conducts a preliminary investigation and his results and analysis are as follows:

Activity (cost driver) Paint and Paint Supplies Carpet Other Flooring Products
Order processing (number of purchase orders) 510 160 107
Receiving (number of deliveries) 51 122 65
Customer support (hours required per sale) 0.30 6.0 0.68

Harish estimates activity-cost rates for each activity as follows:

Order processing $ 135 per purchase order
Receiving 170 per delivery
Customer support 21 per hour

Required:

1. Prepare a product-line profitability report for SPF under the current costing system.

2. Prepare a product-line profitability report for SPF using the ABC information the controller provides.

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