Question 2: Activity based costing and customer profitability analysis [chapter 11 8t 12] Comfort Ltd manufactures blankets for Small hotels, Service apartments and large hotel groups. You recently joined Comfort Ltd as a management accountant and realised that the prot for the last year was 15 percent lower than the previous year and the company uses gross prot margin percentage as the measure of profitability across differe nt customer groups. Last year's selling price, manufacturing cost for the two main products- standard blanket and super comfort blanket, and the number of sales to each customer group is as shown below. Standard blanket Super comfort blanket Selling price $30 $50 Ma nufacturing costs $12 $20 Sale units: Small hotels 1200 200 Service apartment 600 300 Large hotel group 300 1500 After a discussion with the sales and marketing manager, you identify that there are key activities that are performed at different levels order level, customer level and market level. The below table provides the details of each activity, the activity driver, the total indirect cost for each activity and the total activities. Activity Activity driver Total indirect cost Total activities Processing sale order Number of orders $10000 125 orders Delivery cost Number of deliveries $22,200 148 deliveries Invoice customer Number of invoices $2,200 110 invoices Process payment Number of payments $2420 110 payments Handle complaints Number of complaints 5 800 25 complaints 'v'isit customer Number of visits $9120 26 visits Advertise in hotel Equally share among three $18,000 magazines hotel customer groups. The number of activities for each customer group during the last year is shown in the following table. Activity Small hotel Service apartment Large hotel group Processing sale order 40 60 25 Delivery cost 60 60 28 Invoice customer 38 60 30 Process payment 45 58 25 Handle complaints 10 "a" 5 Visit customer 10 18 20 Required: a). Calculate the gross margin for each of the customer groups in dollars and as a percentage. [3 marks} b}. Calculate the cost per unit of activity driver. [3 marks} c). Calculate the customer driven costs for each customergroup. [6 marks} d}. Prepare a profitability report for customer group and determine the most profitable customer group. In your report include operating profit as percentage to sale revenue. [4 marks} {referto week8 lecture example] e]. Analyse the profitability ofthree customer groups and provide suggestions for improving performance. {4 marks}. Total 20 marks