Problem - FS Supermarkets has decided to increase the size of its Memphis store. It wants information about the profitability of individual product lines: soft drinks, fresh produce, and packaged food. FS provides the following data for 2010 for each product line:
Soft Drinks Fresh Produce Packaged foods
Revenues: $317,400 $840,240 $483,960
Cost of goods sold $240,000 $600,000 $360,000
Cost of bottles returned 4,800 0 0
Number of purchase orders placed 144 336 144
Number of deliveries received 120 876 264
Hours of shelf-stocking time 216 2,160 1,080
Items sold 50,400 441,600 122,400
FS also provides the following information for 2010:
Activity Description of activity Total support costs Cost-allocation base
Bottle returns Returning empty bottles $ 4,800 Direct tracing to soft
To store drink line
Ordering Placing orders for purchase $ 62,400 624 purchase orders
Delivery Delivery & receipt of Mdse $100,800 1,260 deliveries
Shelf-stocking Stocking shelves & restocking $ 69,120 3,456 hours of time
Customer support Assistance to customers $122,880 614,400 items sold
Total $360,000
1. FS 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.
2. If FS allocates store support costs to product lines using an ABC system, calculate the operating income and operating income as a percentage of revenues for each product line.