Question

A Ltd specialises in the distribution of pharmaceutical products. It buys from pharmaceutical companies and re-sells to each of the three different distribution channels: (i) General supermarket chains, (ii) Drug store chains, and (iii) Individual chemist shops. The company plans to use activity-based costing for analysing the profitability of its distribution channels. The following data relates to the quarter ending March 2020. Particulars General supermarket chains Drug store chains Individual chemist shops Average sales per delivery $96,500 $32,450 $6,225 Average cost of goods sold per delivery $94,650, $31,800, $5,950 Number of deliveries 960 ,2,470, 8,570 Number of orders 1,000, 2,650, 9,500 Average number of cartons shipped per delivery 250 75 12 Average number of hours of shelf stocking per delivery 2, 0.5, 0.1 The following information is available in respect of operating costs (other than cost of goods sold) for the quarter ending March 2020. Activity areas Cost Cost driver Customer purchase order processing $591,750 Purchase orders by customers Customer store delivery $960,000 Number of deliveries Cartons dispatched to customer stores $792,135 Number of cartons dispatched to customer stores Shelf stocking at customer location $80,240 Hours of shelf stocking Required: (a) Calculate the activity cost driver rates for each of the activity areas. (b) Prepare an income statement showing details of each distribution channel for the quarter ending March 2020 using activity-based costing.

Answer 1

Part A

Part B