Shelley is a retail company with stores throughout Australia. Suppose the company is planning an expansion of its store in Brisbane. A preliminary analysis has shown the Dairy products division to be the most profitable, so the company plans to increase its space the most. Assume that the Brisbane store has just three divisions: Fruits, Dairy products, and Beer. The latest yearly report for the store indicated sales of $4,160,100, which produced a gross margin of $960,100. Sales and gross margins of the three divisions were as follows:

Fruits

Dairy products

Beer

Total

Revenues

$497,700

$2,100,000

$1,562,400

$4,160,100

Cost of products sold

320,000

1,600,000

1,280,000

3,200,000

Gross margin

$177,700

$ 500,000

$ 282,400

$ 960,100

In addition to cost of products sold, the store has$800,000 of support costs, so operating income is$960,100 -$800,000 =$160,100.Shelleycurrently uses an accounting system that uses cost of products sold as a cost-allocation base for allocating support costs.

Edith Soh, controller ofShelley, suggests thatShelleymanagement should undertake further analysis before deciding which product gets the largest increase in space in the expansion. He has asked youto lead this analysis.

Required:

Compute the operating income and the operating income as a percent of sales for eachdivisionusingShelley'scurrentsystem. Use this information toevaluatethe relative profitabilityfor eachdollarof sales of each of the threedivisions