Supermarket operates at capacity and decides to apply ABC analysis to three product lines: baked goods, milk and fruit juice, and frozen foods. It identifies four activities and their activity cost rates as:

Ordering$100 per purchase order

Delivery and receipt of merchandise$80 per delivery

Shelf-stocking$20 per hour

Customer support and assistance$0.20 per item sold

The revenues, costs of good sold, store overhead costs, and activity-area usage of the three product lines are:

Baked GoodsMilk and Fruit JuiceFrozen Products

Financial Data

Revenues$57,000$63,000$52,000

Cost of Goods Sold$38,000$47,000$35,000

Store Overhead$11,400$14,100$10,500

Activity-area usage

(cost allocation bases)

Ordering (purchase orders) 302513

Delivery (deliveries) 983628

Shelf-stocking (hours)1836624

Customer support 15,50020,5007,900

(items sold)

Under the simple costing system, Supermarket allocated overhead costs to products at the rate of 30% of cost of goods sold.

a.Use the simple costing system to develop product-line profitability report for Supermarket.

b.Use the ABC system to provide product line profitability report for Supermarket.

c.What new insights does the ABC system in requirement 2 provide to Supermarket managers?