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Question & Answer: Requirement 1. Suppose Mountainview Outiters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted product-line and…..

Requirement 1. Suppose Mountainview Outiters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted product-line and total company income statements Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G & A costs that you propose to prepare new budgeted product-line and total company income statements. Compare your results to the results in requirement 1. (Customer support and advertising have been linked very closely with store sales.) Write a memo to Mountainview Outfitters management describing how the improved system might be useful for managing the store. 2. 3. PrintDoneQuestion & Answer: Requirement 1. Suppose Mountainview Outiters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted product-line and..... 1

Requirement 1. Suppose Mountainview Outiters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted product-line and total company income statements Identify an improved method for allocating costs to the three product lines. Explain. Use the method for allocating S, G & A costs that you propose to prepare new budgeted product-line and total company income statements. Compare your results to the results in requirement 1. (Customer support and advertising have been linked very closely with store sales.) Write a memo to Mountainview Outfitters management describing how the improved system might be useful for managing the store. 2. 3. PrintDone

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Mountainview Outfitters
Budgeted Income Statement
For the Year Ended Dec.31,2017
Clothing Equipment Shoes Total
Revenues 1360000 1790000 810000 3960000
Cost of merchandise 808500 1200500 441000 2450000
S,G & A costs
808500/2450000*1323000 436590 436590
1200500/2450000*1323000 648270 648270
441000/2450000*1323000 238140 238140
Total costs 1245090 1848770 679140 3773000
Operating Income(Loss) 114910 -58770 130860 187000
Mountainview Outfitters
Budgeted Income Statement
For the Year Ended Dec.31,2017
Clothing Equipment Shoes Total
Revenues————————-1 1360000 1790000 810000 3960000
Cost of merchandise————2 808500 1200500 441000 2450000
S, G & A expenses :
Purchasing department expenses
On No.of purchase orders placed
220/540*334800;130/540*334800&190/540*334800 136400 80600 117800 334800
Receiving Dept. expenses
On No.of boxes received
460/1050*273000;220/1050*273000&370/1050*273000 119600 57200 96200 273000
Customer support expense
Based on revenues
1360/3960*198000;1790/3960*198000&810/3960*198000 68000 89500 40500 198000
Rent
On Sq.ft. of store space
4300/20000*340000;14000/20000*340000&1700/20000*340000 73100 238000 28900 340000
General Store advertising
Based on revenues
1360/3960*79200;1790/3960*79200&810/3960*79200 27200 35800 16200 79200
Store manager’s salary
On Cost of merchandise
808500/2450000*98000;1200500/2450000*98000&441000/2450000*98000 32340 48020 17640 98000
Total S,G & A expenses———–3 456640 549120 317240 1323000
Total costs————————2+3=4 1265140 1749620 758240 3773000
Operating Income————1-4=5 94860 40380 51760 187000
Improved method for allocating s,g & a costs to products is Activity Based Costing.
This method is more appropriate because of its accuracy in allocation.

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