Arctic Air Inc. manufactures cooling units for commercial buildings. The price and cost of goods sold for each unit are as follows: Category Price Cost of goods sold Gross profit Per Unit Dollar Amount $60,000 28,000 32,000 In addition, the company incurs selling and administrative expenses of $226,250. The company wishes to assign these costs to its three major customers, Gough Industries, Breen Inc., and The Martin Group. These expenses are related to three major nonmanufacturing activities: customer service, project bidding, and engineering support. The engineering support is in the form of engineering changes that are placed by the customer to change the design of a product. The budgeted activity costs and activity bases associated with these activities are: Activity Base $51.500 Number of service requests 64,000 Number of bids Activity Budgeted Activity Cost Customer service Project bidding Engineering support Total costs 110,500 Number of customer design changes 226,000 Activity-base usage and unit volume information for the three customers is as follows: Activity Gough Industries Breen Inc. The Martin Group Total Number of service requests 35 27 115 177 Number of bids 50 40 95 185 Number of customer design changes 18 35 108 161 Unit volume 30 16 4 50 Instructions a. Determine the activity rates for each of the three nonmanufacturing activity pools. b. Determine the activity costs allocated to the three customers, using the activity rates in (a). c. Construct customer profitability reports for the three customers, dated for the year ended December 31, using the activity costs in (b). The reports should disclose the gross profit and income from operations associated with each customer. d. Provide recommendations to management on how operations can be improved based on the profitability reports in (c).