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. 1. Use the simple costing system to prepare a product-line profitability report for FS.

  Required

1. 2. Use the ABC system to prepare a product-line profitability report for FS.
2. 3. What new insights does the ABC system in requirement 2 provide to FS managers?