Question
Uli Boxes is a retailer with 3 product lines, with each product line is supplied by a single supplier. Under its traditional costing method the
Uli Boxes is a retailer with 3 product lines, with each product line is supplied by a single supplier. Under its traditional costing method the store support (i.e.ordering and delivery costs) are allocated based on working-hours spent by warehouse staff and the following is the current analysis of the profit of each product line:
Details | Product Line 1 $ | Product Line 2 $ | Product Line 3 $ | Total $ |
Revenue | 65,000 | 85,000 | 50,000 | 200,000 |
Cost of sales | 40,000 | 65,000 | 25,000 | 130,000 |
Store Support | 12,000 | 15,000 | 10,000 | 37,000 |
Total costs | 52,000 | 80,000 | 35,000 | 167,000 |
Profit before other overheads allocated | 13,000 | 5,000 | 15,000 | 33,000 |
Profit margin | 20% | 6% | 30% | 17% |
Uli Boxes wants to improve profitability and it has therefore decided that it should drop product line 2 as it has the lowest profit before other overheads allocated.
You have been asked to complete an analysis based on Activity-Based Costing and you have obtained the following information:
Number of activities | Product Line 1 | Product Line 2 | Product Line 3 |
Orders placed | 30 | 15 | 55 |
Deliveries made | 40 | 20 | 40 |
Cost per activity | |
Ordering | $ 120.00 |
Delivery | $ 250.00 |
What would be the profit margin (before other overheads allocated) under Activity-Based Costing for Product Line 2 (round your answer to the nearest whole number)?
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