Question

Family Supermarkets has decided to increase the size of its Lansing store. It wants information about the profitability of its individual product lines: meats, fresh produce, and packaged food. The following data is for the year 2017 for each product line:

	Meats	Fresh Produce	Packaged Foods
Revenue	$790,000	$840,000	$460,000
Cost of goods sold	$590,000	$600,000	$340,000
purchase orders	276	315	126
hours of stocking shelves	204	2,021	1,067
items sold	311,000	443,000	131,000

The Company also provides the following information for 2017 for its three support activities:

Support Activity	Budgeted Cost	Cost Driver
Ordering	$109,000	purchase orders
Shelf stocking	$77,000	hours of stocking shelves
Customer support	$154,000	items sold

REQUIRED [ROUND ALL OVERHEAD RATES TO TWO DECIMAL PLACES AND ALL ALLOCATIONS TO THE NEAREST DOLLAR.]

Part A (5 tries; 5 points)
Family Supermarkets currently uses a single-driver system to allocate period costs to its product lines. The single driver that is used is the Cost of Goods Sold for each product line. Using this system, compute the allocation to Fresh Produce.

Part B (5 tries; 5 points)
If Family Supermarkets instead used an activity-based costing system to allocate period costs, with the cost pools and cost drivers listed in the tables above, how much would be allocated to Meats?

Answer 1

• All working forms part of the answer
• PART A

	Cost of Goods Sold
Meat	$           5,90,000.00
Fresh Produce	$           6,00,000.00
Packed foods	$           3,40,000.00
Total cost of goods sold	$         15,30,000.00
Support Activity	Budgeted Cost
Ordering	$           1,09,000.00
Shelf stocking	$               77,000.00
Customer support	$           1,54,000.00
Total Overhead	$           3,40,000.00

Single Allocation Rate

A	Total Overhead	$                3,40,000.00
B	Total cost of goods sold	$              15,30,000.00
C=A/B	rate to allocate overhead	$                              0.22 per $ cost of goods sold

---Allocation of Overheads

	Cost of Goods Sold	rate to allocate overhead	Overhead allocated
Meat	$                5,90,000.00	$           0.22	$       1,29,800.00
Fresh Produce	$                6,00,000.00	$           0.22	$       1,32,000.00
Packed foods	$                3,40,000.00	$           0.22	$          74,800.00
Total cost of goods sold	$              15,30,000.00		$       3,36,600.00

Answer: Allocation to Fresh Produce = $ 132,000

• PART B

			Expected Use of
Activity Cost Pools	Cost Drivers	Estimated Overhead	Cost Drivers	Activity rate
		[A]	[B]	[A/B]
Ordering	purchase orders	$                   1,09,000.00	717	$                       152.02	per purchase orders
Shelf stocking	hours of stocking shelves	$                      77,000.00	3292	$                         23.39	per hours of stocking shelves
Customer support	items sold	$                   1,54,000.00	885000	$                           0.17	per items sold
	TOTAL	$                   3,40,000.00

			Meat
Activity Cost Pools	Activity rate		No. of cost drivers	Amount allocated
Ordering	$                        152.02	per purchase orders	$                 276.00	$                 41,957.52
Shelf stocking	$                           23.39	per hours of stocking shelves	204	$                   4,771.56
Customer support	$                             0.17	per items sold	311000	$                 52,870.00
			TOTAL	$                 99,599.08

Answer: Allocated Overhead to Meat = $ 99,599