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3) Best for Less is a retail chain of supermarkets. For many years, it has used gross margin (selling price minus cost of goods sold)
3) Best for Less 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 emphasize or deemphasize. 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 shelves in cartons. A detailed study showed that cubic volume was the major driver of Best for Less goods-handling costs.) The following data focus on four products in April 2007: Product Breakfast cereal Cheese product Paper towels Toothpaste Revenue per Carton Cost of Goods Purchased per Carton Volume (cubic metres) $ 82 $56 24 64 52 12 36 26 24 100 74 12 Each supermarket has a weekly report on product contribution: Revenue $ R Cost of goods sold C Gross margin (GM) R-C Goods-handling costs D Product contribution (PC) SGM-D The April 19_7 goods-handling cost allocation rate is $0.50 per cubic metre. REQUIRED 1. Compute the gross margin for each of the four products. Rank these four products using their gross margin percentage. 2. Compute the product contribution for each of the four products. Rank these four products using the product contribution to revenue percent- age. 3. Compare your ranking in requirement 2 with that in requirement 1. How is the requirement 2 analysis useful to Best for Less management
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