Activity-based costing, merchandising. Pharmahelp, Inc., a distributor of specia

Question

Activity-based costing, merchandising. Pharmahelp, Inc., a distributor of special pharmaceutical products, operats at capacity and has three main market segments:
a. General suppermaket chains
b. Drug store chains
c. Mom-and-pop single-store pahrmacies Rick Flair, the new controller of Pharmahelp, reported the following in 2014 Pharmahelp, 2014 General Supermarket Chains Drugstore Chains Mom-and-Pop Single Stores Pharmahelp Revenues $   3,708,000 $   3,150,000 $    1,980,000 $8,838,000 Cost of goods sold       3,600,000       3,000,000        1,800,000     8,400,000 Gross margin $      108,000 $      150,000 $       180,000         438,000 Other operating costs         301,080 Operating income $    136,920 For many years, Pharmahelp has used gross margin percentage [(Revenue - Cost of goods sold) / Revenue] to evaluate the relative profitability of its market segments. But Flair recently attended a seminar on activity-based costing and is considering using it at Pharmahelp to analyze and allocate "other operating costs". He meets with all the key managers and several of his operations and sales staff, and they agree that there are five key activities that drive other operating costs at Pharmahelp: Activity-based Cost Data
Pharmahelp, 2014

Activity General Supermarket Chains Drugstore Chains Mom-and-pop Single Stores Total Cost of Activity in 2014 Orders processed (number)                    140                    360                 1,500 $       80,000       40.00 Line-items ordered (number)                1,960                4,320              15,000           63,840          3.00 Store deliveries made (number)                    120                    360                 1,000           71,000       47.97 Cartons shipped to stores (number)             36,000             24,000              16,000           76,000          1.00 Shelf stocking (hours)                    360                    180                     100           10,240       16.00         301,080 Enter amount __________ 1a) Compute the 2014 gross-margin percentage for the general supermarket chains segment. __________ 1b) Compute the 2014 gross-margin percentage for the drugstore chains segment. __________ 1c) Compute the 2014 gross-margin percentage for the mom-and-pop single stores segment. Round answers to two decimal points, i.e. 1.12% 2) Use the activity-based costing information to allocate the $301,080 of "other operating costs" to each of the market segments: __________ 2a) General supermarket chains segment __________ 2b) Drugstore chains segment __________ 2c) Mom-and-pop single stores segment Compute the operating income for each market segment: __________ 2d) General supermarket chains segment __________ 2e) Drugstore chains segment __________ 2f) Mom-and-pop single stores segment 3) Compute the gross-margin percentage for each segment under activity-based costing: Round answers to two decimal points, i.e. 1.12% __________ 3a) General supermarket chains segment __________ 3b) Drugstore chains segment __________ 3c) Mom-and-pop single stores segment         301,080 Activity-based costing, merchandising. Pharmahelp, Inc., a distributor of special pharmaceutical products, operats at capacity and has three main market segments:
a. General suppermaket chains
b. Drug store chains
c. Mom-and-pop single-store pahrmacies Rick Flair, the new controller of Pharmahelp, reported the following in 2014 Pharmahelp, 2014 General Supermarket Chains Drugstore Chains Mom-and-Pop Single Stores Pharmahelp Revenues $   3,708,000 $   3,150,000 $    1,980,000 $8,838,000 Cost of goods sold       3,600,000       3,000,000        1,800,000     8,400,000 Gross margin $      108,000 $      150,000 $       180,000         438,000 Other operating costs         301,080 Operating income $    136,920

Explanation / Answer

1) Gross margin percentage=( Revenue-Cost of goods sold)/Revenue*100

a) General supermarket chains= ($3708000-$3600000)/$3708000=2.91%

b) drugstore chains=($3150000-$3000000)/$3150000*100=4.76%

c) Mom &pop single stores= ($1980000-$1800000)/$1980000*100=9.09%

2)

Cost have been calculated in following manner

E.g General: (140*40)+(1960*3)+(120*47.97)+(360*16)=59000**

**Amounts have been rounded off

Operating income

2d) General= $108000-$59000=$49000

2e) drug=$150000-$71510=$78490

2f) Mom=$180000-$170570=$9430

3) Gross margin percentage under ABC would be same as calculated in 1a,1b,1c i.e

2.91%

4.76%

9.09%

Respectively

Because under traditional costing and ABC costing there is only the difference of allocation of costs.

Pls give your feedback!! Happy Learning :)

General Drug chain Mom &pop single stores Activity driver Orders processed 140 360 1500 40 Line Items ordered 1960 4320 15000 3 Store deliveries made 120 360 1000 47.97 Cartons shipped to stores 36000 24000 16000 1 Shelf stocking 360 180 100 16 Cost ( store*cost diver) 59000 71510 170570

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