Cost allocation with a non-financial variable, retailing. (15-20 minutes) Jyvaskyla, Oy, is a retail chain of supermarkets.
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Cost allocation with a non-financial variable, retailing. (15-20 minutes) Jyvaskyla, Oy, is a retail chain of supermarkets. For many years, it has used gross margin (selling price minus cost of goods sold) to guide it in deciding on which products to emphasise or de-emphasise. And, for many years, it has not allocated any costs to products. It changed its internal reporting system recently and goods handling costs are now allocated to individual products on the basis of cubic volume. (Most products are delivered to the shelves in cartons. A detailed study showed that cubic volume was the major driver of Jyvaskyla goods handling costs.
These costs make up over 30% of non-cost-of-goods-sold costs of Jyvaskyla.) The following data focus on four products in April 2001: mjy7
REQUIRED 1. Calculate the gross margin for each of the four products. Rank these four products using their gross margin percentage. 2. Calculate the product contribution for each of the four products. Rank these four products using the product contribution to revenue percentage. 3. Compare your ranking in requirement 2 with that in requirement 1. How is the requirement 2 analysis useful to Jyvaskyla management?
Transcribed Image Text:
REVENUE COST OF GOODS PURCHASED VOLUME PRODUCT PER CARTON PER CARTON (CUBIC METRES) Breakfast cereal EUR 82 EUR 56 24 Cheese product 64 52 12 Paper towels 36 26 24 Toothpaste 100 74 12 Each supermarket has a weekly report on product contribution: Revenue Cost of goods sold Gross margin (GM) Goods handling costs Product contribution (PC) EUR R C R-C D EUR GM D The April 1999 goods-handling cost allocation rate is EUR 0.50 per cubic metre.
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