Question: <a href=Activity-based costing,activity-based management, merchandising. Main StreetBooks and Café (MSB…” />Activity-based costing,
activity-based management, merchandising. Main Street
Books and Café (MSBC) is a large city bookstore that sells books
and music CDs and has a café. MSBC operates at capacity and
allocates selling, general, and administration (S, G & A) costs
to each product line using the cost of merchandise of each product
line. MSBC wants to optimize the pricing and cost management of
each product line. MSBC is wondering if its accounting system is
providing it with the best information for making such
decisions.

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Question: Activity-based costing,activity-based management, merchandising. Main StreetBooks and Café (MSB...

Main Street Books and Café incurs the following selling,
general, and administration costs:

Main Street Books and Café Selling, General, and Administration
(S, G & A) Costs For the Year Ended December 31, 2014

Purchasing department expense

$ 474,500

Receiving department expense

432,400

Shelf stocking labor expense

487,500

Customer support expense (cashiers and floor employees)

91,184

$1,485,584

Required

1.Suppose MSBC uses cost of merchandise to
allocate all S, G & A costs. Prepare product line and total
company income statements.

2.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
product line and total company income statements. Compare your
results to the results in requirement 1.

3.Write a memo to MSBC management describing
how the improved system might be useful for managing the store.

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