400 Problem 3: Softtowel Ltd manufactures towels for department stores and residential hotels. The financial controller is concerned that the profits for last year were 15 per cent below the previous year and plans to calculate the profitability of the three main customer groups: department stores, small hotels, and large hotels. Last year the selling price and manufacturing costs for the three major products - bath sheets, bath towels and hand towels - and sales to customer groups, were as shown below. Bath sheets Bath towels Hand towels Selling price $40 $35 $20 Manufacturing cost $20 $15 $7 Sales units: Department stores 500 1,000 300 Small hotels 300 300 Large hotels 800 1,200 850 The customer-driven activities, cost per unit of activity driver, and activities for each customer group were as follows: Activities Cost per unit of activity driver Department stores Small hotels Large hotels Process sales order $80 per order 40 60 25 Deliver order $150 per delivery 60 60 28 Invoice customer $30 per invoice 38 60 30 Process payment $20 per payment 45 58 25 Handle complaint $40 per complaint 10 7 8 Investigate bad debt $50 per investigation 6 4 10 Visit customers $120 per visit 30 26 20 Advertise in hotel $50,000 (to be shared equally magazines between small and large hotels) Required: 1. Calculate the customer-driven costs for each customer group. 2. Prepare a profitability report in order to determine the contribution of the three customer groups to company profits. Within your report, include percentage contributed by each customer group to sales revenue, gross margin, and contribution to company profits. 3. Contrast the relative profitability of the three customer groups and provide suggestions for improving performance