Reference no: EM131274622

Assignment Information

Alain Bookshop and Café (ABC) is a large city bookstore that sells books and music CDs and has a café. ABC operates at capacity and allocates selling, general and administration costs to each product line using the cost of merchandise of each product line. ABC wants to optimize the pricing and cost management of each product line. ABC is wondering if its accounting system is providing it with the best information for making such decisions.

Alain Books and Café
Product Line Information
For the Year Ended December 31, 2014
	Books	CDs	Café
Revenues	$3,720,480	$2,315,360	$736,216
Cost of merchandise	$2,656,727	$1,722,311	$556,685
Cost of café cleaning			$18,250
Number of purchase orders placed	2,800	2,500	2,000
Number of deliveries received	1,400	1,700	1,600
Hours of shelf stocking time	15,000	14,000	10,000
Items sold	124,016	115,768	368,108

ABC incurs the following selling, general and administration costs:

Alain Books and Café
Selling, General, and Administration Costs
For the Year Ended December 31, 2014
Purchasing department expenses	$474,500
Receiving department expense	$432,400
Shell stocking labour expense	$487,500
Customer support expense (cashiers and floor employees)	$91,184
	$1,485,584

Required

1. Prepare product line and total company income statements, assuming that ABC uses cost of merchandise to allocate all selling, general and administration costs.

2. Identify and explain an improved method for allocating each of the selling, general and administration costs to the three product lines.

3. Prepare product line and total company income statements, using the method you have identified in 2. above to allocate all selling, general and administration costs.

4. Compare your results in 3 above with those in 1 Above.

5. Write a memo to ABC management describing how the improved system you propose might be useful for managing the store. [The memo must be written using a formal memo format. Refer to business communication books for guidance].