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’s 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 2018:

The April 2018 goods-handling cost allocation rate is €0.50 per cubic metre.

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?

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Cost of goods purchased per carton Revenue Volume Product per carton (cubic metres) Breakfast cereal €82 €56 24 Dairy product Paper towels Toothpaste 64 52 12 36 26 24 100 74 12 Each supermarket has a weekly report on product contribution: Revenue R Cost of goods sold Gross margin (GM) Goods-handling costs Product contribution (PC) R-C D € GM - D