World View Outfitters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. World View Outfitters 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. The company wants to optimize the pricing and cost management of each product line and is wondering if its accounting system is providing it with the best information for making such decisions.Store manager Abe Barry gathers the following information regarding the three product lines:For2017,World View Outfitters budgets the following selling, general, and administration costs: 1.SupposeWorld ViewOutfitters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted 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 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.)3.Write a memo toWorld ViewOutfitters management describing how the improved system might be useful for managing the store. World View Outfitters SellingGeneral, and Administration (S, G, & A)Costs For the Year Ended December 31, 2017Purchasing department expense$334,800Receiving department expense273,000Customer support expense (cashiers and floor employees)198,000Rent340,000General store advertising79,20098,000Store manager's salary$1,323,000Total World View Outfitters BudgetedProduct-Line InformationFor the Year Ended December 31, 2017ClothingEquipmentShoesTotalRevenues$1,360,000 $1,790,000 $810,000 $3,960,000Cost of merchandise$808,500 $1,200,500 $441,000 $ 2,450,000Number of purchase orders placed220130190540Number of boxes received4602203701,050Square feet of store space4,30014,0001,70020,000

What is meant by activity-based costing? This method is used to allocate the overhead or indirect…

Answered: World View Outfitters operates a large…

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter7: The Master Budget And Flexible Budgeting

Section: Chapter Questions

Problem 4E: Prepare a cost of goods sold budget for the Crest Hills Manufacturing Co. for the year ended...

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World View Outfitters operates a large outdoor clothing and equipment store with three main product lines: clothing, equipment, and shoes. World View Outfitters 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. The company wants to optimize the pricing and cost management of each product line and is wondering if its accounting system is providing it with the best information for making such decisions.

Store manager Abe Barry gathers the following information regarding the three product lines:

For2017,World View Outfitters budgets the following selling, general, and administration costs:

1.	Suppose World View Outfitters uses cost of merchandise to allocate all S, G & A costs. Prepare budgeted 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 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.)
3.	Write a memo to World View Outfitters management describing how the improved system might be useful for managing the store.

World View Outfitters Selling
General, and Administration (S, G, & A)
Costs For the Year Ended December 31, 2017
Purchasing department expense
$
334,800
Receiving department expense
273,000
Customer support expense (cashiers and floor employees)
198,000
Rent
340,000
General store advertising
79,200
98,000
Store manager's salary
$
1,323,000
Total

World View Outfitters Budgeted
Product-Line Information
For the Year Ended December 31, 2017
Clothing
Equipment
Shoes
Total
Revenues
$
1,360,000 $
1,790,000 $
810,000 $
3,960,000
Cost of merchandise
$
808,500 $
1,200,500 $
441,000 $ 2,450,000
Number of purchase orders placed
220
130
190
540
Number of boxes received
460
220
370
1,050
Square feet of store space
4,300
14,000
1,700
20,000

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