Reference no: EM133062025

Question - Uli Boxes is a retailer with 3 product lines, with each product line is supplied by a single supplier. Under its traditional costing method the store support (i.e. ordering and delivery costs) are allocated based on working-hours spent by warehouse staff and the following is the current analysis of the profit of each product line:

Details	Product Line 1 $	Product Line 2 $	Product Line 3 $	Total $
Revenue	65,000	85,000	50,000	200,000
Cost of sales	40,000	65,000	25,000	130,000
Store Support	12,000	15,000	10,000	37,000
Total costs	52,000	80,000	35,000	167,000
Profit before other overheads allocated	13,000	5,000	15,000	33,000
Profit margin	20%	6%	30%	17%

Uli Boxes wants to improve profitability and it has therefore decided that it should drop product line 2 as it has the lowest profit before other overheads allocated.

You have been asked to complete an analysis based on Activity-Based Costing and you have obtained the following information:

Number of activities	Product Line 1	Product Line 2	Product Line 3
Orders placed	30	15	55
Deliveries made	40	20	40

Cost per activity

Ordering $120.00

Delivery $250.00

Required - What would be the profit margin (before other overheads allocated) under Activity-Based Costing for Product Line 2 (round your answer to the nearest whole number)?

A. 6%.

B. 16%.

C. 24%.

D. 18%.