This is a cost allocation problem for a merchandising firm. Since merchandising firms do not have overhead, you must allocate "support costs" instead of "overhead costs." Also, the allocations in this problem are to a product line, not to an individual product or job. Nonetheless, the allocation process is the same. Just follow the three steps used in the lectures: Read the problem and question carefully to determine the cost driver. Compute the "overhead" rate - budgeted operating costs / budgeted driver for all product lines. Allocate to the specific product line; overhead rate X driver for the specific product line. Remember that with activity-based costing (Part B), there is more than one driver and more than one rate, and the allocation to a product line is the sum of several individual allocations. Each part of the problem is worth five points, and you get five tries per part. ______________________________________________________ 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 2016 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 240 316 152 hours of stocking shelves 200 2,139 1,101 items sold 327,000 436,000 110,000 The Company also provides the following information for 2016 for its three support activities: Support Activity Budgeted Cost Cost Driver Ordering $125,000 purchase orders Shelf stocking $83,000 hours of stocking shelves Customer support $178,000 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 Meats. _____________ 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 Fresh Produce? _____________

 

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