Calculate the gross margin and operating income

Question

Problem:

Family Supermarkets (FS) has decided to increase the size of its Memphis store. It wants information about the profitability of individual product lines: soft drinks, fresh produce, and packaged food. FS provides the following data for the year 2006 for each product line:      

		Soft	Fresh	Packaged
		Drinks	Produce	Food
Revenues		$ 317,400	$     840,240	$     483,960
Cost of goods sold		$ 240,000	$     600,000	$     360,000
Cost of bottles returned		$     4,800	$                -	$                -
Number of purchase orders placed		144	336	144
Number of deliveries received		120	876	264
Hours of shelf-stocking time		216	2,160	1,080
Items sold		50,400	441,600	122,400

FS also provides the following information for the year 2006:           

Activity	Description of Activity		Total Costs	Cost-Allocation Base
(1)	(2)		(3)	(4)
1.Bottle returns	Returning of empty bottles to store.		$       4,800	Direct tracing to soft drink line
2. Ordering	Placing of orders for purchases.		$     64,200	Purchases orders
3. Delivery	Physical delivery and receipt of		$   100,800	Deliveries
	merchandise.
4. Shelf	Stocking of merchandise on store		$     69,120	Hours of stocking time
stocking	shelves and ongoing restocking.
5. Customer	Assistance provided to customers,		$   122,880	Items sold
support	including check out and bagging.

Required:

1. Family Supermarkets currently allocates store support costs (all costs other than cost of goods sold) to product lines on the basis of cost of goods sold of each product line. Calculate the gross margin, the operating income and operating income as a percentage of revenues for each product line.

2. If FS allocates store support costs (all costs other than cost of goods sold) to product lines using an ABC system, calculate the gross margin, the operating income and operating income as a percentage of revenues for each product line.

3. Comment on your answers in requirements 1 and 2.