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Studemeir Paint & Floors (SPF) is a retail store specializing in home improvement. The store has experienced net operating losses in its Other Flooring Products
Studemeir Paint & Floors (SPF) is a retail store specializing in home improvement. The store has experienced net operating losses in its Other Flooring Products line during the last few periods. SPF's management team thinks that the store will improve its profitability if it stops carrying the Other Flooring Products line. The operating results from the most recent period are: Paint and Paint Supplies $ 228,700 163,000 Other Flooring Products $ 158,000 127,000 Carpet $ 214,000 152,000 Sales Cost of goods sold SPF estimates that store operating expenses are approximately 24% of revenues. Harish Rana, SPF's 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: Paint and Paint Supplies 350 80 0.50 Other Flooring Products 116 Activity (cost driver) Order processing (number of purchase orders) Receiving (number of deliveries) Customer support (hours required per sale) Carpet 138 170 4.0 59 0.56 Harish estimates activity-cost rates for each activity as follows: Order processing Receiving Customer support $ 112 181 26 per purchase order per delivery 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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