Family Supermarkets (FS) has decided to increase the size of its Memphis store.
ID: 2484059 • Letter: F
Question
Family Supermarkets (FS) has decided to increase the size of its Memphis store. It wants information about the profitability of individual product line: soft drinks, fresh produce, and packaged food. FS provides the following data for 2011 for each product line: Fs also provides the following information for 2011: Family Supermarkets currently allocates store support costs (all costs other than cost of goods sold) to product lines on the basis of cost of goods sold of each product line. Calculate the operating income and operating income as a percentage of revenues for each product line. If Family Supermarkets allocates store support costs (all costs other than cost of goods sold) to product lines using an ABC system, calculate the operating income and operating income as a percentage of revenues for each product line.Explanation / Answer
Solution:
1. Calculation of operating income when support costs are allocated on the basis of cost of goods sold.
Ratio of cost of goods sold = 240000:600000:360000
= 2:5:3
So, support costs are to be allocated in the ratio 2:5:3
Soft Drinks
Fresh Produce
Packaged Food
Revenues (A)
317400
840240
483960
Less:
Cost of goods sold
240000
600000
360000
Cost of bottles returned
4800
0
0
Ordering Cost
12480
31200
18720
(2/10*62400)
(5/10*62400)
(3/10*62400)
Delivery cost
20160
50400
30240
(2/10*100800)
(5/10*100800)
(3/10*100800)
Shelf Stocking cost
13824
34560
20736
(2/10*69120)
(5/10*69120)
(3/10*69120)
Customer support cost
24576
61440
36864
(2/10*122880)
(5/10*122880)
(3/10*122880)
Total costs (B)
315840
777600
466560
Operating Income (A-B)
1560
62640
17400
Operating Income(as % of Revenue)
0.49
7.46
3.60
(1560/317400)*100
(62640/840240)*100
(17400/483960)*100
2. Calculation of operating income when support costs are allocated using ABC sysytem.
Cost driver
Cost per unit of cost driver
Soft Drinks
Fresh Produce
Packaged Food
Revenues
-
-
317400
840240
483960
Less:
Cost of goods sold
-
-
240000
600000
360000
Cost of bottles returned
Direct tracingSoft drink line
-
4800
0
0
Ordering Cost
No. of purchase orders
100 (62400/624)
14400
33600
14400
(144*100)
(336*100)
(144*100)
Delivery cost
No. of deliveries'
80 (100800/1260)
9600
70080
21120
(120*80)
(876*80)
(264*80)
Shelf Stocking cost
Hours of shelf stocking time
20 (69120/3456)
4320
43200
21600
(216*20)
(2160*20)
(1080*20)
Customer support cost
Items sold
0.2 (122880/614400)
10080
88320
24480
(50400 *0.2)
(441600*0.2)
(122400*0.2)
Total costs
283200
835200
441600
Operating Income
34200
5040
42360
Operating Income(as % of Revenue)
10.78
0.60
8.75
34200/317400*100
5040/840240*100
42360/483960*100
Soft Drinks
Fresh Produce
Packaged Food
Revenues (A)
317400
840240
483960
Less:
Cost of goods sold
240000
600000
360000
Cost of bottles returned
4800
0
0
Ordering Cost
12480
31200
18720
(2/10*62400)
(5/10*62400)
(3/10*62400)
Delivery cost
20160
50400
30240
(2/10*100800)
(5/10*100800)
(3/10*100800)
Shelf Stocking cost
13824
34560
20736
(2/10*69120)
(5/10*69120)
(3/10*69120)
Customer support cost
24576
61440
36864
(2/10*122880)
(5/10*122880)
(3/10*122880)
Total costs (B)
315840
777600
466560
Operating Income (A-B)
1560
62640
17400
Operating Income(as % of Revenue)
0.49
7.46
3.60
(1560/317400)*100
(62640/840240)*100
(17400/483960)*100
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