Question 1 (20 marks) Golden Pharmacy Ltd is a distributor of special pharmaceutical products in Sydney. The company is operating at capacity in the three major market segments: general supermarket chains, drugstore chains, and single-store pharmacies. The performance reports in the last quarter revealed that the profit margin in the market of single-store pharmacies has been declining and the management would like examine individual customer profitability in order to make further sales and marketing decisions in that market. The CEO has recently attended a seminar on activity-based costing (ABC) and is considering using it to analyse customer profitability. After meeting with all the relevant managers, the following five major activities that drive customer costs and the cost driver rates are identified: Activity Area Cost Driver Rate Order processi $40 per order Line-item ordering $4 per line item Store deliveries $50 per store delivery Carton deliveries $2 per carton Shelf-stocking $15 per stocking-hour Two customers are selected for the pilot analysis using the ABC approach. Data pertaining to these two customers in the last month are as follows: Q Q QNumber of orders Customer A Customer B Average line items per order 14 11 Total store deliveries 9 17 8 Average cartons shipped per store delivery 10 22 Average hours of shelf-stocking per store delivery 21 0 0.5 Average revenue per delivery $2,500 $2,100 Average cost of goods sold per delivery $2,200 $1,900 Question 2 Required: (a) Use the ABC information to compute the operating profit of each customer in the last month. Comment on the results about customer profitability. (12 marks) (b) Describe the four levels of cost hierarchy in an ABC system. Provide an example of costs for each level. (8 marks) 6 x X. X B H