Fletcher Pty Ltd supplies floral arrangements to three (3) large supermarket chains throughout Australia Management has become concerned about the rising costs associated with the processing and dispatch of orders An activity analysis of the overhead costs identified the following customer related costs Activities Cost driver Estimated overhead cost Use of cost drivers Woolies Coles IGR Total Orders Processing Number of orders $226,200 350 150 80 580 Returns Processing number of returns $50,000 60 35 30 125 Delivery numbers of deliveries $89,700 450 220 110 780 Rush orders number of rush orders $59,400 15 25 26 66 Expected sales pattern for three (3) customers Woolies Coles IGR Sales $480,000 $200,000 $230,000 Cost of goods sold $335,000 $122,000 $135,000 Gross Profit $145,000 $78,000 $95,000 Required Using the the activity based costing (ABC) appraoch Calculate the activity cost rate for each activity Assign the activity costs to each of the three (3) customers Calculate the contribution for each customer category Advise the management of Fletcher as to whether any changes should be made in its relationships with customers Advise the management as to how they should go about executing these changes

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Fletcher Pty Ltd supplies floral arrangements to three (3) large supermarket chains throughout Australia. Management has become concerned about the rising costs associated with the

Fletcher Pty Ltd supplies floral arrangements to three (3) large supermarket chains throughout Australia. Management has become concerned about the rising costs associated with the processing and dispatch of orders. An activity analysis of the overhead costs identified the following customer related costs.

Activities	Cost driver	Estimated overhead cost	Use of cost drivers
			Woolies	Coles	IGR	Total
Orders Processing	Number of orders	$226,200	350	150	80	580
Returns Processing	number of returns	$50,000	60	35	30	125
Delivery	numbers of deliveries	$89,700	450	220	110	780
Rush orders	number of rush orders	$59,400	15	25	26	66

Expected sales pattern for three (3) customers
	Woolies	Coles	IGR
Sales	$480,000	$200,000	$230,000
Cost of goods sold	$335,000	$122,000	$135,000
Gross Profit	$145,000	$78,000	$95,000

Required:

Using the the activity-based costing (ABC) appraoch:

Calculate the activity cost rate for each activity.
Assign the activity costs to each of the three (3) customers.
Calculate the contribution for each customer category.
Advise the management of Fletcher as to whether any changes should be made in its relationships with customers. Advise the management as to how they should go about executing these changes?