Activity based costing and segment profitability analysis_happy chips


Prepare an ACTIVITY BASED COSTING ANALYSIS and SEGMENT PROFITABILITY ANALYSIS based on the following case study information for Happy Chips Inc:




Happy Chips Inc. currently manufactures and distributes several varieties of potato chips to different types of retail accounts:




1. Grocery segment – with 250 retail customer locations accounting for 2.1 million annual unit sales and 74% of annual revenue.




2. Drug segment- with 140 customer locations accounting for 365K annual unit sales and 14% of annual revenue.




3. Mass merchandise segment- with 6 locations that account for 400K annual unit sales and 12% of annual revenue.




Please note that all deliveries were store-direct with 2 deliveries per week to grocery stores, 1 delivery per week to drugstores , and 3 deliveries per week to mass merchandisers. 




The selling prices for each unit were :


1. Grocery                   $1.70


2. Drugstores               $1.90


3. Mass Merchandise     $1.40




Mass merchandise segment wants Happy Chips to cover the suggested retail price (generally about $3.00 regardless of channel) with a sticker bearing its reduced price. The machinery to apply these labels had an annual lease cost of $40,000. Labor and material will cost $0.06 per unit.


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