The Dairy Division of BMC, located in the city of Colac, operates at capacity, and considers applying ABC analysis to three product lines within its division: full cream milk, skim milk, and almond milk. The manager of this division identifies four activities, and their activity cost allocation rates as follows

Ordering	$100	per purchase order
Machine set up	$75	per set up
Freezing	$5	per hour
Packaging	$0.15	per item sold

The revenues, cost of goods sold, and activity usage of the three product lines are as follows:

Table 2 - Dairy Division, year 2021

Year 2021	Full Cream	Skim	Almond
Financial data
Revenues	$250,000	$150,000	$75,000
Direct manufacturing cost	$40,000	$25,000	$15,000
Manufacturing overhead allocated	?	?	?
Activity-area usage (cost-allocation base)
Ordering (purchase orders)	200	100	60
Machine set up (setups)	90	35	30
Freezing (hours)	190	180	40
Packaging (items sold)	100,000	60,000	8,000

Using a division-wide allocation rate, the Dairy Division of BMC allocated manufacturing overhead to the three products at the rate of 30% of direct manufacturing cost.

Required

a) Using the division-wide allocation rate, calculate and identify which product line has the highest gross margin in dollars and in percentage (i.e., gross profit/revenue).

b) Using ABC, calculate and determine the profitability (i.e., gross profit/revenue) of the three product lines (i.e., specify the highest, the middle, and the lowest profitable product line).

c) The division expects that, in the year 2022, there will be no freezing activity because the division wants to sell the products as fresh as possible. The division wants to manufacture the products at a smaller batch each time so there is an increase of set up activities for every product line as below

Activity	Full Cream	Skim	Almond
Ordering	200	100	60
Machine set up	140	110	120
Freezing	0	0	0
Packaging	100,000	60,000	8,000

If everything else is equal (activity cost allocation rate, direct manufacturing cost, and sales revenue for all three products remain the same), provide the annual change of gross margin under ABC for each product (i.e., total gross margin under ABC in 2022 minus total gross margin under ABC in 2021).