Horngren's Cost Accounting, Student Value Edition (16th Edition)
16th Edition
ISBN: 9780134476032
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 5, Problem 5.27E
ABC, retail product-line profitability. Fitzgerald Supermarkets (FS) operates at capacity and decides to apply ABC analysis to three product lines: baked goods, milk and fruit juice, and frozen foods. It 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, store support costs, activities that account for the store support costs, and activity-area usage of the three product lines are as follows:
Under its simple costing system, FS allocated support costs to products at the rate of 30% of cost of goods sold.
- 1. Use the simple costing system to prepare a product-line profitability report for FS.
Required
- 2. Use the ABC system to prepare a product-line profitability report for FS.
- 3. What new insights does the ABC system in requirement 2 provide to FS managers?
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Company MN is a wholesale distributor. It uses an ABC system to analyze customer profitability for its small- and medium-sized retail customers. The cost pool, cost driver and other relevant information is shown below.
Cost pool
Costs
Cost driver
Small retailer
Medium retailer
Ordering
300,000
Number of orders
8,000
4,000
Delivery
750,000
Number of deliveries
10,800
4,200
Customer Service
1,200,000
Number of products sold
320,000
480,000
Total overhead
2,250,000
What is the average total overhead cost per product sold to small and medium retailers? (Assuming every item sold requires certain involvement of customer service)
Choose answer as below.
A. Small: $3.81; Medium: $2.15
B. Small: $3.81; Medium: $1.5
C. Small: $3.81; Medium: $0.44
D. Small: $3.81; Medium: $0.21
Company MN is a wholesale distributor. It uses an ABC system to analyze customer profitability for its small- and medium-sized retail customers. The cost pool, cost driver and other relevant information is shown below.
Cost pool
Costs
Cost driver
Small retailer
Medium retailer
Ordering
300,000
Number of orders
8,000
4,000
Delivery
750,000
Number of deliveries
10,800
4,200
Customer Service
1,200,000
Number of products sold
320,000
480,000
Total overhead
2,250,000
What is the average total overhead cost per product sold to small retailers? (Assuming every item sold requires certain involvement of customer service)
Choose the below answer.
A. $3.81
B. $1.50
C. $25.00
D. $50.00
Flair ranks the individual customers in the Ma and Pa single-store distribution market on the basis of monthly operating income. The cumulative operating income of the top 20% of customers is $58,120. Best Drugs reports operating losses of $23,670 for the bottom 40% of its customers. Make four recommendations that you think Best Drugs should consider in light of this new customer-profitability information.
Chapter 5 Solutions
Horngren's Cost Accounting, Student Value Edition (16th Edition)
Ch. 5 - What is broad averaging, and what consequences can...Ch. 5 - Why should managers worry about product...Ch. 5 - What is costing system refinement? Describe three...Ch. 5 - What is an activity-based approach to designing a...Ch. 5 - Describe four levels of a cost hierarchy.Ch. 5 - Why is it important to classify costs into a cost...Ch. 5 - What are the key reasons for product cost...Ch. 5 - Prob. 5.8QCh. 5 - Department indirect-cost rates are never...Ch. 5 - Prob. 5.10Q
Ch. 5 - Prob. 5.11QCh. 5 - Prob. 5.12QCh. 5 - Activity-based costing is the wave of the present...Ch. 5 - Increasing the number of indirect-cost pools is...Ch. 5 - The controller of a retail company has just had a...Ch. 5 - Conroe Company is reviewing the data provided by...Ch. 5 - Prob. 5.17MCQCh. 5 - Cost hierarchy. Roberta, Inc., manufactures...Ch. 5 - ABC, cost hierarchy, service. (CMA, adapted)...Ch. 5 - Alternative allocation bases for a professional...Ch. 5 - Plant-wide, department, and ABC Indirect cost...Ch. 5 - Plant-wide, department, and activity-cost rates....Ch. 5 - ABC, process costing. Sander Company produces...Ch. 5 - Department costing, service company. DLN is an...Ch. 5 - Activity-based costing, service company....Ch. 5 - Activity-based costing, manufacturing. Decorative...Ch. 5 - ABC, retail product-line profitability. Fitzgerald...Ch. 5 - Prob. 5.28ECh. 5 - Activity-based costing. The job-costing system at...Ch. 5 - ABC, product costing at banks,...Ch. 5 - Problems 5-31 Job costing with single direct-cost...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - Job costing with multiple direct-cost categories,...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - First-stage allocation, time-driven activity-based...Ch. 5 - Department and activity-cost rates, service...Ch. 5 - Activity-based costing, merchandising. Pharmahelp,...Ch. 5 - Choosing cost drivers, activity-based costing,...Ch. 5 - ABC, health care. Crosstown Health Center runs two...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - Unused capacity, activity-based costing,...Ch. 5 - ABC, implementation, ethics. (CMA, adapted) Plum...Ch. 5 - Activity-based costing, activity-based management,...
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