Question 2 (30 marks) David, who is working as a Management accountant at LMN Ltd., decided to undertake an analysis of customer profitability. David decided to examine three different markets for the recently introduced Air fryers. The three market segments are: National electrical retailers (NER) State-wide electrical retailers (SER) Council-wide electrical retailers (CER) For many years LMN Lid. has used Gross profit margin percentage as the measure of the profitability of different market segments. Linda, the assistant to David, has provided the following data for the year ending 30 June 2022. NER SER CER Sales revenue $30,000,000 $6,000,000 $2,400,000 Cost of sales $24,000,000 $4,200,000 $1,440,000 After a detailed discussion with the divisional managers and their assistants, all of them have agreed that there are five key activity areas performed by LMN Ltd. in serving all three different market segments (NER, SER, CER). The table below provides the details of each cost pool and the cost driver. Cost pool Cost driver Order processing Number of orders Line-item ordering Number of line items ordered Delivery Number of deliveries made Cartoons Number of Cartoons shipped Customer service Number of hours spent The total indirect service cost for the year ending 30 June 2022 amounts to $2,760,000. The division of this cost into the 5 cost pools is shown in the table below: Cost pool Customer cost ($) in the year Cost driver ended 30 June 2022 Order processing 600,000 12,000 orders Line-item ordering 420,000 105,000 line items ordered Delivery 720,000 7,200 deliveries Cartoons 660,000 132,000 cartoons shipped Customer service 360,000 1,800 hours Total 2,760,000The number of transactions in each cost pool by three types of customers (NER, SER, CER) during the financial year ending 30 June 2022 are shown in the following table: Transaction NER SER CER Total Number of orders processed 1,200 1,800 9,000 12,000 Average number of line items per order 20 15 6 Total line items ordered 24,000 27,000 54,000 105,000 Deliveries made 600 600 6,000 7,200 Average cartoons per delivery 150 20 5 Total cartoons 90,000 12,000 30,000 132,000 Customer service 1,170 510 120 1,800 Required: a) Calculate the gross margin for each of the market segments. (4 marks) b) Determine the cost pool rate for each of the five cost pools. (4 marks) c) Determine the total customer cost for each market segment. (5 marks) d) Determine the most profitable market segment using first dollars and, second, net margin %. Compare the results to those in (a) and comment on your findings. (10 marks) e) Identify and describe two major problems that would be faced by both David and Linda in allocating the customer cost to the activity areas and market segment. (7 marks) (Chapter 11, 30 marks)