Reference no: EM132605166

Australian Mart (AM) operates at capacity and decides to apply ABC analysis to three product lines:

pastry and cakes, Dairy Products, and meat products. It identifies four activities and their activity cost rates as follows:

• Ordering $100 per purchase order
• Delivery and receipt of merchandise $ 80 per delivery
• Shelf-stocking $ 20 per hour
• Customer support and assistance $ 0.20 per item sold

The revenues, cost of goods sold, store support costs, the activities that account for the store support costs, and activity-area usage of the three product lines are as follows:

Particulars                             Pastry and cakes               Dairy Products                Meat Products

Fundamentals

Revenue                                   57000                             63000                       52000

Cost of Goods sold                       38000                                47000                       35000

Store support                                11400                               14100                       10500

Activities (Cost allocation base)

Ordering (purchasing order)                     30                                      25                         13

Delivery (Deliveries)                                98                                    36                            28

Shelf-stocking (hours)                             183                                    166                           24

Customer support (item sold)                      15500                               20500                        7900

Under its simple costing system, AM allocated support costs to products at the rate of 30% of cost of goods sold.

Require:

Question 1. Use the simple/traditional costing system to conduct a product-line profitability report for AM.

Question 2. Use the ABC system to conduct a product-line profitability report for AM.