1 Activity Based Costing (22 Marks)

Blue Cheesecakes Pty Ltd supplies cheesecakes to three large supermarket chains in Sydney. Management has recently become concerned about the rising costs associated with the processing and dispatch of orders. An activity analysis of the indirect costs identified the following customer-related costs.

Activity Cost Pool	Cost Driver	Estimated Indirect Costs	Total Expected use of Cost Driver	Use of Cost Driver Supermarket Customer 1 2 3
Orders processing	Number of orders	$230,000	480	320	110	50
Returns Processing	Number of returns	$ 60,000	110	60	35	15
Delivery	Number of deliveries	$95,000	680	400	180	100
Rush Orders	Number of rush orders	$71,000	51	10	21	20
Sales visits	Number of visits	$18,000	95	45	24	26

Required: (Please show all your workings for the calculations below)

1. Calculate the activity cost rate for each activity. (5 marks)
2. Assign the activity costs for each of the three customers (5 Marks)
3. Calculate the profitability of each customer taking into account both cost of sales as well as indirect costs allocated. Use below sales pattern for each customer: (6 Marks)

Customer 1 $350,000

Customer 2 $180,000

Customer 3 $260,000

Note: Sales are marked up 50% on cost of sales.

4. Based on your results from part c) and all information available, should there be any changes considered by the management in relation to each customer? Explain. (6 Marks)