Mini Case Seto's Storage Warehouse Paul Seto owns and manages a commercial storage warehouse. He stores a vast variety of perishable goods for his customers. Under the existing pricing policy, he has charged customers using a flat rate of $2.40 per kilogram per month for goods stored. His storage warehouse has 10,000 cubic metres of storage capacity. In the past two years, Seto has become dissatisfied with the profitability of the warehouse operation. Despite the fact that the warehouse remains relatively full, revenues have not kept pace with operating costs. Recently, Seto approached his accountant, Albert Lo, about using activity-based costing (ABC) to improve his understanding of the causes of costs and revise the pricing formula. Lo has determined that most costs can be associated with one of four activities. Those activities and their related monthly costs, volume measures, and volume levels for 2020 are as follows: Activity Send/receive goods Store goods Move goods Identify goods Cost $80,000 $8,000 $10,000 $3,000 Monthly Volume Measure Weight in kilograms 50,000 Volume in cubic metres - 800 Volume in square metres - 500 Number of packages - 500 Lo has also collected last month's information on the following 3 customers whose goods were all received on the first day of last month. Customers Sunshine Co. Best Buy Co. Chow's Trading Weight of Order Cubic (Kilograms) Metres 20,000 600 20,000 400 20,000 200 Square Metres 30 20 100 Number of Packages 10 40 160 Seto would like Lo to perform some analyses based on the above information and data in order to evaluate whether to use ABC. a. Determine the price to be charged to each of the 3 customers under the existing pricing policy. (3 marks) b. Based on the monthly activity cost and volume data provided, determine the amount of costs assigned to each of the 3 customers. (10 marks) c. Determine the price to be charged to each of the 3 customers using activity-based costing (ABC), assuming Seto would base the price on the cost determined in part (b) plus a markup of 40 percent. (3 marks) d. Critically discuss whether Setos existing pricing policy captures the costs incurred to provide the warehouse services. (5 marks) e. A cost hierarchy categorizes costs into different cost pools on the basis of the different types of cost drivers or cost-allocation bases. Describe the four levels of a manufacturing cost hierarchy under the ABC system with regard to Seto's storage warehouse. (4 marks)