World View Outfitters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. World View Outfitters 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 Abe Barry gathers the following information regarding the three product lines:For2017,World View Outfitters budgets the following selling, general, and administration costs: 1.SupposeWorld ViewOutfitters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted 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. (Customer support and advertising have been linked very closely with store sales.)3.Write a memo toWorld ViewOutfitters management describing how the improved system might be useful for managing the store. World View Outfitters SellingGeneral, and Administration (S, G, & A)Costs For the Year Ended December 31, 2017Purchasing department expense$334,800Receiving department expense273,000Customer support expense (cashiers and floor employees)198,000Rent340,000General store advertising79,20098,000Store manager's salary$1,323,000Total World View Outfitters BudgetedProduct-Line InformationFor the Year Ended December 31, 2017ClothingEquipmentShoesTotalRevenues$1,360,000 $1,790,000 $810,000 $3,960,000Cost of merchandise$808,500 $1,200,500 $441,000 $ 2,450,000Number of purchase orders placed220130190540Number of boxes received4602203701,050Square feet of store space4,30014,0001,70020,000

What is meant by activity-based costing? This method is used to allocate the overhead or indirect…

Answered: World View Outfitters operates a large…

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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World View Outfitters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. World View Outfitters 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 Abe Barry gathers the following information regarding the three product lines:

For2017,World View Outfitters budgets the following selling, general, and administration costs:

1.	Suppose World View Outfitters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted 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. (Customer support and advertising have been linked very closely with store sales.)
3.	Write a memo to World View Outfitters management describing how the improved system might be useful for managing the store.