Question

ULI, DULISU Ndres custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Activity Rate $ 22 per direct labor-hour $ 196 per order $ 265 per custom design $ 436 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outfitters, which has ordered the following products over the last 12 months: Standard Custom Model Design Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider 28.50 $ 1,700 $ 462 34.00 2,350 568 $ The company's direct labor rate is $18 per hour. Required: Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.) < Prey 2 of 4 ! Next > earch DO e N 9

Answer 1

Solution:

Computation of Total Overhead cost assigned to Customer Big Sky
Activity Cost Pool	Working	Standard	Custom	Total
Supporting Direct Labor	Standard ($22*28.50 hours*12 gliders) Custom ($22*34 hours*3 gliders)	$7,524	$2,244	$9,768
Order processing	Standard ($196*2 order) Custom ($196*3 orders)	$392	$588	$980
Custom design processing	Standard ($265*0 Design) Custom ($265*3 designs)	$0	$795	$795
Customer Service	($436 * 1 Customer)			$436
Total Overhead assigned				$11,979

Computation of Customer Margin of Big Sky
Sales:
Standard ($1700*12)	$20,400
Custom ($2350*3)	$7,050
Total Sales		$27,450
Less: Costs:
Direct Material Cost
Standard ($462*12)	$5,544
Custom ($568*3)	$1,704
		$7,248
Direct Labor cost
Standard ($18*28.50*12)	$6,156
Custom ($18*34*3)	$1,836
		$7,992
Overhead cost assigned		$11,979
Total Costs		$27,219
Customer Margin		$231