The Troy store of Henderson Mart a chain of small neighborho

The Troy store of Henderson Mart, a chain of small neighborhood convenience stores, is preparing its activity-based budget for January 2018. Henderson Mart has three product categories: soft drinks (35% of cost of goods sold [COGS), fresh produce (25% of COGS), and packaged food (40% of COGS), The following table shows the four activities that consume indirect resources at the Troy store, the cost drivers and their rates, and the cost-driver amount budgeted to be consumed by each activity in January 2018. EEB (Click the icon to view the activity and cost-driver information.) Read the requirements. Requirement 1. What is the total budgeted indirect cost at the Troy store in January 2018? What is the total budgeted cost of each activity at the Troy store for January 2018? What is the budgeted indirect cost of each product category for January 2018? Complete the following table to determine the total budgeted indirect cost, total budgeted cost of each activity, and budgeted indirect cost of each product category for January 2018. (Round the percentages to the nearest hundredth percent. X.XX%.) Soft Fresh Packaged Snacks Drinks Food Total Ordering Delivery Shelf-stocking Customer support Total costs Percentage of total indirect costs

Solution

1.

2.Fresh snacks has the largest fracton of total budgeted indirect costs.($18,356 or 64.33% of the budgeted indirect costs).

3.By using activity based costing, more costs are allocated to those product categories which use most of the cost dirvers, where as budgeted approach is only based on apportionments which may not reflected actual usage of resouces by product categories.

In the given case Activity based costing results in allocating 64.33% of indirect costs to fresh snacks product category, based on use of resources by it.

On the other hand using predetermined allocation based on cost of goods sold will result in allocation of only 25% of indirect costs to fresh snacks product category, which will result in under pricing of such products.

other two product categories will be allocated higher indirect costs resulting in overpricing of such products.

	soft drinks	fresh snacks	packaged food	total
ordering ($92 * 12, 25 , 12)	$1,104	$2,300	$1,104	$4,508
delivery ($82*9, 65, 21)	$738	$5,330	$1,722	$7,790
shelf stocking ($20 * 22,173,97)	$440	$3,460	$1,940	$5,840
customer support ($0.21 * 4,400, 34,600, 10,500)	$924	$7,266	$2,205	$10,395
TOtal costs	$3,206	$18,356	$6,971	$28,533
percentage of total indirect costs (product cost / total cost )*100	11.24%	64.33%	24.43%	100.00%