Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are: Sales Cost of goods sold Frozen Foods Baked Goods Fresh Produce 238000 381,000 416000 221,000 308,000 321,000 SFS estimates that store support expenses, in total, are approximately 13% of revenues. The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are: ences Activity (cost driver) Order processing (number of purchase orders) Receiving (number of deliveries) Shelf - stocking (number of hours per delivery) Customer support ( total units sold) Frozen Baked Foods Goods 11 62 1375 5 0.2 27,000 38,000 Fresh Produce 107 254 7 76,000 The controller estimates activity - cost rates for each activity as follows: Order processing Receiving Shelf - stocking Customer support 98 per purchase order 112 per delivery 20.00 per hour 0.25 per item Required: Prepare a product line profitability report for SFS under the current costing system. Prepare a product-line profitability report for SFS using the ABC information the controller provides
Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last few periods. Management believes that the store can improve its profitability if SFS discontinues frozen foods. The operating results from the most recent period are: Sales Cost of goods sold Frozen Foods Baked Goods Fresh Produce 238000 381,000 416000 221,000 308,000 321,000 SFS estimates that store support expenses, in total, are approximately 13% of revenues. The controller says that not every sales dollar requires or uses the same amount of store support activities. A preliminary analysis reveals store support activities for these three product lines are: ences Activity (cost driver) Order processing (number of purchase orders) Receiving (number of deliveries) Shelf - stocking (number of hours per delivery) Customer support ( total units sold) Frozen Baked Foods Goods 11 62 1375 5 0.2 27,000 38,000 Fresh Produce 107 254 7 76,000 The controller estimates activity - cost rates for each activity as follows: Order processing Receiving Shelf - stocking Customer support 98 per purchase order 112 per delivery 20.00 per hour 0.25 per item Required: Prepare a product line profitability report for SFS under the current costing system. Prepare a product-line profitability report for SFS using the ABC information the controller provides
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Supermart Food Stores (SFS) has experienced net operating losses in its frozen food products line in the last
few periods. Management believes that the store can improve its profitability if SFS discontinues frozen
foods. The operating results from the most recent period are: Sales Cost of goods sold Frozen Foods Baked
Goods Fresh Produce 238000 381,000 416000 221,000 308,000 321,000 SFS estimates that store support
expenses, in total, are approximately 13% of revenues. The controller says that not every sales dollar
requires or uses the same amount of store support activities. A preliminary analysis reveals store support
activities for these three product lines are: ences Activity (cost driver) Order processing (number of purchase
orders) Receiving (number of deliveries) Shelf - stocking (number of hours per delivery) Customer support (
total units sold) Frozen Baked Foods Goods 11 62 1375 5 0.2 27,000 38,000 Fresh Produce
107 254 7 76,000 The controller estimates activity - cost rates for each activity as follows: Order processing
Receiving Shelf - stocking Customer support 98 per purchase order 112 per delivery 20.00 per hour 0.25 per
item Required: Prepare a product-line profitability report for SFS under the current costing system. Prepare
a product-line profitability report for SFS using the ABC information the controller provides
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