Mountain Outfitters Budgeted Product-Line Information For the Year Ended December 31, 2017 Clothing Equipment Shoes Total Revenues $1,440,000 $1,840,000 $1,250,000 S720,000 $400,000 $4,000,000 $2,500,000 Cost of merchandise $ 850,000 Number of purchase orders placed 200 125 175 500 Number of boxes received 450 200 350 1,000 Square feet of store space 4,500 10,000 1,500 16,000 For 2017, Mountain Outfitters budgets the following selling, general, and administration costs: Mountain Outfitters Selling, General, and Administration (S, G & A) Costs For the Year Ended December 31, 2017 $ 320,000 Purchasing department expense Receiving department expense Customer support expense (cashiers and floor employees) 210,000 250,000 Rent 240,000 General store advertising Store manager's salary 100,000 125,000 $1,245,000 Required 1. Suppose Mountain Outfitters uses cost of merchandise to allocate all S, G & A costs. Prepare bud- geted product-line and total company income statements. 2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G & A costs that you propose to prepare new budgeted product-line and total company income statements. Compare your results to the results in requirement 1. 3. Write a memo to Mountain Outfitters management describing how the improved system might be useful for managing the store.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question
100%

Activity-based costing, activity-based management, merchandising. Mountain Outtters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. Mountain Outtters operates at capacity and allocates selling, general, and administration (S, G & A) costs to each product line using the cost of
merchandise of each product line. The company wants to optimize the pricing and cost management of each product line and is wondering if its accounting system is providing it with the best information for making such decisions. Store manager Aaron Budd gathers the following information regarding the three product lines:

Mountain Outfitters Budgeted
Product-Line Information
For the Year Ended December 31, 2017
Clothing
Equipment
Shoes
Total
Revenues
$1,440,000
$1,840,000
$1,250,000
S720,000
$400,000
$4,000,000
$2,500,000
Cost of merchandise
$ 850,000
Number of purchase orders placed
200
125
175
500
Number of boxes received
450
200
350
1,000
Square feet of store space
4,500
10,000
1,500
16,000
For 2017, Mountain Outfitters budgets the following selling, general, and administration costs:
Mountain Outfitters Selling,
General, and Administration (S, G & A)
Costs For the Year Ended December 31, 2017
$ 320,000
Purchasing department expense
Receiving department expense
Customer support expense (cashiers and floor employees)
210,000
250,000
Rent
240,000
General store advertising
Store manager's salary
100,000
125,000
$1,245,000
Required
1. Suppose Mountain Outfitters uses cost of merchandise to allocate all S, G & A costs. Prepare bud-
geted product-line and total company income statements.
2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for
allocating S, G & A costs that you propose to prepare new budgeted product-line and total company
income statements. Compare your results to the results in requirement 1.
3. Write a memo to Mountain Outfitters management describing how the improved system might be useful
for managing the store.
Transcribed Image Text:Mountain Outfitters Budgeted Product-Line Information For the Year Ended December 31, 2017 Clothing Equipment Shoes Total Revenues $1,440,000 $1,840,000 $1,250,000 S720,000 $400,000 $4,000,000 $2,500,000 Cost of merchandise $ 850,000 Number of purchase orders placed 200 125 175 500 Number of boxes received 450 200 350 1,000 Square feet of store space 4,500 10,000 1,500 16,000 For 2017, Mountain Outfitters budgets the following selling, general, and administration costs: Mountain Outfitters Selling, General, and Administration (S, G & A) Costs For the Year Ended December 31, 2017 $ 320,000 Purchasing department expense Receiving department expense Customer support expense (cashiers and floor employees) 210,000 250,000 Rent 240,000 General store advertising Store manager's salary 100,000 125,000 $1,245,000 Required 1. Suppose Mountain Outfitters uses cost of merchandise to allocate all S, G & A costs. Prepare bud- geted product-line and total company income statements. 2. Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G & A costs that you propose to prepare new budgeted product-line and total company income statements. Compare your results to the results in requirement 1. 3. Write a memo to Mountain Outfitters management describing how the improved system might be useful for managing the store.
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 6 steps with 18 images

Blurred answer
Knowledge Booster
Costing Systems
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education