Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
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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Additional Activities
Now that you have learned how to forecast revenues and cost of the
business, investigate how these concepts are being applied by existing businesses
in your community. Using the table below, fill in the necessary information based on
your investigation.
Daily Revenue and Cost
Name of Business:
Projected
Projected
Volume
Revenue
Projected
Cost
Mark-up
Selling
(D)
(E)
Costs of
per Unit
Price
Average
Merchandisel
Purchases
(A)
(B)
(C)
No. of
Products
(Daily)
(Daily)
Items Sold
(Daily)
(B)= (A x
C =A +
E = C x D
K = (A x D)
.50)
B
Ex. Bag
150.00
75.00
225.00
10
2250
1500
yd belugm
COLLEC
tol elubom r borlain even uoy Jar wo
Aan pese
Customer profitability, customer-cost hierarchy. Enviro-Tech has only two retail and two wholesale customers. Information
relating to each customer for 2017 follows (in thousands):
Wholesale Customers
Retail Customers
North America
South America
Wholesaler
Wholesaler
Green Energy
Global Power
Revenues at list prices
Discounts from list prices
Cost of goods sold
Delivery costs
Order processing costs
$375,000
25,800
$590,000
$175,000
$130,000
47,200
8,400
590
285,000
510,000
144,000
95,000
2,230
2,180
4,550
6,710
2,145
3,820
5,980
1,130
Cost of sales visit
6,300
2,620
2,620
1,575
Enviro-Tech's annual distribution-channel costs are $33 million for wholesale customers and $12 million for retail
customers. The company's annual corporate-sustaining costs, such as salary for top management and general-
administration costs are $48 million. There is no cause-and-effect or benefits-received relationship between any cost-
allocation base and corporate-sustaining costs. That is, Enviro-Tech could…
The manager of the West store has concerns relating to the store’s financial performance and has asked for help analyzing transfer costs.
After calculating the operating income in dollars and the operating income percent, analyze the following financial information to determine costs that may need further investigation.
It may be helpful to perform a vertical analysis (i.e., perform a vertical analysis).
warehouse
west store
sales
$18,920
$43,860
cost of goods sold
9,082
21,053
gross profit
$9,838
$22,807
selling expenses
860
2,752
wages expense
4,730
15,351
costs allocated from corporate
2,838
4,386
Total expenses
$8,428
$22,489
operating income/(loss) $
?
?
Operating Income/(loss) %
?
?
Chapter 5 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (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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