Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in...
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Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are: Frozen Foods Sales Cost of goods sold $ 120,000 105,000 Baked Goods Fresh Produce $ 91,000 67,000 $ 158,175 110,000 SFS estimates that store support expenses, in total, are approximately 20% of revenues. The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are: Frozen Baked Fresh Activity (cost driver) Foods Goods Produce Order processing (number of purchase orders) Receiving (number of deliveries) 10 45 100 12 55 120 Shelf-stocking (number of hours per delivery) 2 0.5 4 Customer support (total units sold) 30,000 40,000 86,000 The controller estimates activity-cost rates for each activity as follows: Order processing $ 80 per purchase order Receiving 110 per delivery Shelf-stocking 15.25 per hour Customer support 0.21 per item Required: 1. Prepare a product-line profitability report for SFS under the current costing system. 2. Prepare a product-line profitability report for SFS using the ABC information the controller provides. Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are: Frozen Foods Sales Cost of goods sold $ 120,000 105,000 Baked Goods Fresh Produce $ 91,000 67,000 $ 158,175 110,000 SFS estimates that store support expenses, in total, are approximately 20% of revenues. The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are: Frozen Baked Fresh Activity (cost driver) Foods Goods Produce Order processing (number of purchase orders) Receiving (number of deliveries) 10 45 100 12 55 120 Shelf-stocking (number of hours per delivery) 2 0.5 4 Customer support (total units sold) 30,000 40,000 86,000 The controller estimates activity-cost rates for each activity as follows: Order processing $ 80 per purchase order Receiving 110 per delivery Shelf-stocking 15.25 per hour Customer support 0.21 per item Required: 1. Prepare a product-line profitability report for SFS under the current costing system. 2. Prepare a product-line profitability report for SFS using the ABC information the controller provides.
Expert Answer:
Answer rating: 100% (QA)
1 Current Costing System a Calculate Operating Income Loss The formula for operating income loss is OperatingIncomeLoss Sales CostofGoodsSoldCOGS StoreSupportExpenses textOperating Income Loss textSal... View the full answer
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