1. Customer Profitability Analysis (40 marks)

Connors Catering supplies ready meals to three large supermarket chains. With the prolonged Covid-19 pandemic, management has become concerned about the rising costs associated with the processing and dispatch of orders and the import of ingredients. These have had a negative impact on the company's profit margin. Connors Catering has been reluctant to pass these rising costs onto its customers as a higher cost may reduce the company's competitiveness in the market price. In addition, isolation rules have meant staffing absences have been on the rise, affecting production and labour costs. An activity analysis of the company's overhead costs identified the following customer-related costs:

Sales are marked up 50% on cost.

Required

(a) Calculate the activity cost rate for each activityand the total overhead cost.

(b) Assign the activity costs to each of the three customersand calculate the total activity cost for each customer.