Under its simple costing system, FS allocated support costs to products at the rate of 30% of cost of goods sold. 1. Use the simple costing system to prepare a product-line profitability report for FS. 2. Use the ABC system to prepare a product-line profitability report for FS. 3. What new insights does the ABC system in requirement 2 provide to FS managers? 5-25 ABC, wholesale, customer profitability. Ramirez Wholesalers operates at capacity and sells furni- ture items to four department-store chains (customers). Mr. Ramirez commented, "We apply ABC to deter- mine product-line profitability. The same ideas apply to customer profitability, and we should find out our customer profitability as well." Ramirez Wholesalers sends catalogs to corporate purchasing departments on a monthly basis. The customers are entitled to return unsold merchandise within a six-month period from the purchase date and receive a full purchase price refund. The following data were collected from last year's operations: Gross sales Sales returns: Chain 1 2 3 4 $55,000 $25,000 $100,000 $75,000 Number of items Amount Number of orders: Regular Rush 101 $11,000 Ramirez has calculated the following activity rates: Activity Regular order processing Rush order processing Returned items processing 65 25 $3,500 $7,000 45 175 52 11 48 11 Catalogs and customer support 35 $ 6,500 Cost-Driver Rate $25 per regular order $125 per rush order $15 per item $1,100 per customer 75 32 22