Question 2: Activity based costing and customer profitability analysis (chapter 11 & 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 profit for the last year was 15 percent lower than the previous year and the company uses gross profit margin percentage as the measure of profitability across different 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 Manufacturing costs $12 $20 Sale units: Small hotels 1200 700 Service apartment 600 300 Large hotel group 300 1500Activity 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 Invoicecustomer $2,200 Handle complaints Number of complaints $800 25 complaints Visit customer Number of visits $9120 Advertise in hotel Equally share among three $18,000 magazines hotel customer groups. Process payment Number of payments $2420 110 payments 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 7 5 Visit customer 10 18 20