Cal’s Sporting Goods has three product lines and has decided to apply ABC analysis to these three product lines: Running, Golfing and Kayaking. He identifies four activities and their activity cost rates as follows: Ordering $95 per purchase order Delivery and receipt of merchandise $76 per delivery Shelf stocking $19 per hour Customer support and assistance $0.15 per item sold. The revenues, cost of goods sold and activity usage are listed below: Running Golfing Kayaking Financial Data Revenues $60,000 $66,500 $50,500 Cost of goods sold $41,000 $51,000 $32,000 Store support costs (overhead) Activity Area Usage Ordering (purchase orders 44 24 14 Delivery (deliveries) 120 60 36 Shelf stocking (hours) 170 150 20 Customer support (items sold) 15,400 20,200 7,960 Under the simple costing system. Cal’s Sporting Goods allocated support costs (overhead) to products at the rate of 30% of cost of goods sold. Using the simple costing system, prepare an income statement showing operating income for each product line and the total for the company. Using the ABC system, prepare an income statement showing operating income for each product line and the total for the company.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Cal’s Sporting Goods has three product lines and has decided to apply ABC analysis to these three product lines: Running, Golfing and Kayaking. He identifies four activities and their activity cost rates as follows:

Ordering	$95 per purchase order
Delivery and receipt of merchandise	$76 per delivery
Shelf stocking	$19 per hour
Customer support and assistance	$0.15 per item sold.

The revenues, cost of goods sold and activity usage are listed below:

	Running	Golfing	Kayaking
Financial Data
Revenues	$60,000	$66,500	$50,500
Cost of goods sold	$41,000	$51,000	$32,000
Store support costs (overhead)
Activity Area Usage
Ordering (purchase orders	44	24	14
Delivery (deliveries)	120	60	36
Shelf stocking (hours)	170	150	20
Customer support (items sold)	15,400	20,200	7,960

Under the simple costing system. Cal’s Sporting Goods allocated support costs (overhead) to products at the rate of 30% of cost of goods sold.

Using the simple costing system, prepare an income statement showing operating income for each product line and the total for the company.
Using the ABC system, prepare an income statement showing operating income for each product line and the total for the company.

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