But Flair recently attended a seminar on activity-based costing and is consideri
ID: 2414797 • Letter: B
Question
But Flair recently attended a seminar on activity-based costing and is considering using it at Phamacare to Pharmacare, Inc., a distributor of special pharmaceutical products, operates at capacity and has three main market segments. Rick Flair, the new controller of Pharmacare, reported the following data foranalyze and allocate "other operating costs." 2017 EB (Click the icon to view the data.) For many years, Pharmacare has used gross margin percentage to evaluate the relative profitability of its market segments. (Click the icon to view the activities and relevant information.) The level of each activity in the three market segments and the total cost incurred for each activity in 2017 is as follows (Click the icon to view the activity level and cost information.) Read the requirements. Requirement 1. Compute the 2017 gross-margin percentage for each of Pharmacare's three market segments. (Enter the percent to two decimal places.) Gross margin percentage Supermarket ChainsExplanation / Answer
For many years, Pharmahelp has used gross margin percentage [(Revenue – Cost of goods sold) ÷ Revenue]
1. Calculation of Gross Margin Percentage Pharmahelp’s three market segments General Supermarket Chains Drugstore Chains Mom and Pop Single Stores Total Revenues (A) $3,706,000 $3,190,000 $1,984,000 $8,880,000 Cost of Goods Sold (B) $3,602,000 $3,035,000 $1,805,000 $8,442,000 Gross Margin © $104,000 $155,000 $179,000 $438,000 Gross Margin Percentage (C/A X 100) 3% 5% 9% 5%For many years, Pharmahelp has used gross margin percentage [(Revenue – Cost of goods sold) ÷ Revenue]
2. Calculation of Cost driver Rate General Supermarket Chains Drugstore Chains Mom and Pop Single Stores Total (A) Cost (B) Cost Driver Rate (B/A) Orders Processed 150 370 1,480 2000 $82,000 $41 Line-Items Ordered 1,950 4,300 14,750 21000 $84,000 $4 Store Deliveries Made 125 325 960 1410 $70,500 $50 Cartons Shipped to Stores 38,000 23,000 18,000 79000 $79,000 $1 Shelf Stocking (hours) 360 190 110 660 $9,240 $14 3. Calculation of Operating Income General Supermarket Chains Drugstore Chains Mom and Pop Single Stores Total Revenues (A) $3,706,000 $3,190,000 $1,984,000 $8,880,000 Cost of Goods Sold (B) $3,602,000 $3,035,000 $1,805,000 $8,442,000 Gross Margin © $104,000 $155,000 $179,000 $438,000 Less: other Operating Costs Orders Processed $6,150 $15,170 $60,680 $82,000 Line-Items Ordered $7,800 $17,200 $59,000 $84,000 Store Deliveries Made $6,250 $16,250 $48,000 $70,500 Cartons Shipped to Stores $38,000 $23,000 $18,000 $79,000 Shelf Stocking (hours) $5,040 $2,660 $1,540 $9,240 Total Operating Costs (D) $63,240 $74,280 $187,220 $324,740 Operating income (C-D) $40,760 $80,720 -$8,220 $113,260 Answer 4) General Supermarket Chains Drugstore Chains Mom and Pop Single Stores Gross Margin Percentage 0.028 0.049 0.090 Ranking III II I Operating Margin Percentage 0.011 0.025 (0.004) Ranking II I III The Activity based Analysis of costs shows Mom and Pop Single Stores uses a larger amount of Pharmahelp resources per revenue $ then do the other two markets. The ratio of the operating costs to the revenue acrross the three markets are General Supermarket Chains Drugstore Chains Mom and Pop Single Stores Total Operating Costs (A) $63,240.00 $74,280.00 $187,220.00 Revenues (B) $3,706,000.00 $3,190,000.00 $1,984,000.00 Ratio of the operating costs to the revenue 0.017 0.023 0.094 Ranking I II IIIRelated Questions
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