2. Baby Smart Lid makes and sells baby clothes, cot bedding, play mats suitable for babies up to one year old. These products are sold through two main retail customers, "James Lewis" and "Quality Baby", and about 70 small retailers. The company also sells on-line and to export retailers:- The latest annual income statement is as follows: Baby clothes Cot bedding Play mats total to00 Gross sales 7,200 37.600 20,000 64,800 Variable 720 1,880 2,400 5,000 manufacturing costs Trade discounts 36 150 70 256 Salesmens 72 376 200 648 commission Total variable costs $28 2,406 2,670 5.904 Contribution 6,372 35,194 17,330 58,896 Less fixed costs Fixed 2400 9600 6000 18000 Manufacturing costs Sales and marketing 4,000 costs Administration 3,600 costs Total fixed costs 25,600 Net income 33,296 Baby-smart Ltd wishes to perform a customer profitability analysis. They have analysed their sales into the following customers: Sales per customer group Customer groups James Quality small UK export Lewis Baby retailers retailers total 6000 COOO Baby clothes 1600 2,000 1,800 1800 7,200 Cot bedding 10,600 8000 9400 9,600 37600 Play mats 4,000 5,000 4,000 7,000 20000 James Lewis and Quality Baby are well known retail chains operating in the UK.You discover the following information relating to costs: i) Variable manufacturing costs per product should be allocated on the same percentage of the sales as shown in the income statement, i) Trade discounts are not offered to overseas buyers and are given to the other customers in the same proportion as the sales of those customers. ifi) Salesmens' commission is 1% of sales, iv) Fixed manufacturing costs shown in the income statement above should be allocated to customers based on the % of the manufacturing cost per product to the sales value of each product. v) Sales and marketing and administration costs should be allocated as follows: James Lewis 20% Quality baby 20% small retailers 25% export retailers 35% Required (a) Provide a customer profitability analysis for the company for the year using the information above. (15 marks) (b) (i) Comment on the information provided by your analysis in (a). (5 marks) (ii) Advise the company on issues which would enable them to negotiate more effectively to retain and improve sales to customers. (5 marks) (Total 25 marks)