Chapter 6, Problem 6.30E

Activity-based budgeting. The Jerico store of Jiffy Mart, a chain of small neighborhood convenience stores, is preparing its activity-based budget for January 2018. Jiffy Mart has three product categories: soft drinks (35% of cost of goods sold [COGS]), fresh produce (25% of COGS), and packaged food (40% of COGS). The following table shows the four activities that consume indirect resources at the Jerico store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January 2018.

1. 1. What is the total budgeted indirect cost at the Jerico store in January 2018? What is the total budgeted cost of each activity at the Jerico store for January 2018? What is the budgeted indirect cost of each product category for January 2018?
2. 2. Which product category has the largest fraction of total budgeted indirect costs?
3. 3. Given your answer in requirement 2, what advantage does Jiffy Mart gain by using an activity-based approach to budgeting over, say, allocating indirect costs to products based on cost of goods sold?