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 $ 120,000 105,000 Baked Goods $ 91,000 67,000 Sales Cost of goods sold SFS estimates that store support expenses, in total, are approximately 20% of revenues. Fresh Produce $ 158,175 110,000 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: Activity (cost driver) Order processing (number of purchase orders) Receiving (number of deliveries) Shelf-stocking (number of hours per delivery) Customer support (total units sold) Order processing Receiving Shelf-stocking Customer support Frozen Baked Foods Goods 10 45 12 55 20.5 30,000 40,000 The controller estimates activity-cost rates for each activity as follows: $ 80 per purchase order per delivery 110 15.25 per hour 0.21 per item Fresh Produce 100 120 4 86,000 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 $ 120,000 105,000 Baked Goods $ 91,000 67,000 Sales Cost of goods sold SFS estimates that store support expenses, in total, are approximately 20% of revenues. Fresh Produce $ 158,175 110,000 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: Activity (cost driver) Order processing (number of purchase orders) Receiving (number of deliveries) Shelf-stocking (number of hours per delivery) Customer support (total units sold) Order processing Receiving Shelf-stocking Customer support Frozen Baked Foods Goods 10 45 12 55 20.5 30,000 40,000 The controller estimates activity-cost rates for each activity as follows: $ 80 per purchase order per delivery 110 15.25 per hour 0.21 per item Fresh Produce 100 120 4 86,000 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text: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:
Order processing
Receiving
Shelf-stocking
Customer support
Sales
Cost of goods sold
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 Foods
$ 120,000
185,000
Activity (cost driver)
Order processing (number of purchase orders)
Receiving (number of deliveries)
Shelf-stocking (number of hours per delivery)
Customer support (total units sold)
The controller estimates activity-cost rates for each activity as follows:
$ 88 per purchase order
110
per delivery
per hour
per item
Store support:
Baked Goods
$ 91,800
67,800
15.25
8.21
Required 2
Total store support cost
Operating income (loss)
Operating margin (loss)
Complete this question by entering your answers in the tabs below.
Fresh Produce
$ 158,175
110,000
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.
Frozen Food
$
Frozen Baked
Foods Goods
Required 1
Prepare a product-line profitability report for SFS using the ABC information the controller provides. (Loss amounts should be
indicated by a minus sign. Round operating margin (loss) to 2 decimal places (i.e. .2134 should be entered as 21.34%).
Round your other answers to nearest whole dollar.)
0
10
12
2
30,000
$
< Required 1
Baked Goods
45
55
0.5
48,000
0
S
Fresh
Produce
Fresh Produce
188
120
4
86,000
0
0
Required 2 >
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