Use ABC systems for ABM. Family Supermarkets (FS) found that its ABC analysis (see the Pulling It…
Use ABC systems for ABM. Family Supermarkets (FS) found that its ABC analysis (see the Pulling It All Together problem in this chapter) provided important insights. FS extends the analysis to cover three more product lines: baked goods, milk and fruit juice, and frozen products. It identifies four activities and activity cost rates for each activity as
Ordering $120 per purchase order
Delivery and receipt of merchandise 96 per delivery
Shelf-stocking 24 per hour
Customer support and assistance 0.24 per item sold
The revenues, cost of goods sold, store support costs, and activity area usage of the three product lines are as follows:
There are no bottle returns for any of these three product lines.
1. Use the previous costing system (support costs allocated to products at the rate of 30% of cost of goods sold} to compute a product line profitability report for FS.
2. Use the ABC system (ordering at $120 per purchase order, delivery at$96 per delivery, shelf -stocking at $24 per hour, and customer support at $0.24 per item sold) to compute a product line profitability report for FS.
3. What new insights does the ABC system in requirement 2 provide to FS managers?