Question 3: Activity-based costing Tasty Tortes supplies rich cakes to three large supermarket chains. Management has become concerned about the rising costs associated with the processing and dispatch of orders. An activity analysis of the indirect costs identified the following customer-related costs: Activity cost pool Cost driver Estimated indirect costs Expected use of cost drivers Use of cost driver by customer A B C Orders processing Returns processing Number of orders $206,080 920 orders 600 200 120 Number of returns $50,000 200 returns 50 100 50 Delivery Number of deliveries $102,200 1400 deliveries 800 400 200 Rush orders Number of rush orders $70,000 Sales visits Number of visits $20,000 100 rush orders 200 visits 20 40 40 100 50 50 Sales are marked up 50% on direct costs. Required (a) Calculate the contribution of each customer if the sales for each are as follows: Customer A-$600 000; Customer B-$300 000; Customer C-$510 000. (3 marks) (b) Calculate the activity cost rate for each activity. (3 marks) (c) Assign the activity costs to each of the three customers. (8 marks) (d) Calculate the profitability of each customer assigning the costs calculated in (c). (3 marks) (e) Advise the management of Tasty Tortes as to whether any changes should be made in its relationships with customers. (6 marks) TOTAL: 23 MARKS