Question

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management has designed an activity-based costing system with the following activity cost pools and activity rates: 4 Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Activity Rate per direct labor-hour $ 194 per order $ 256 per custom design $ 434 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 13 2 Number of orders 2. Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider 27.50 32.00 $1,625 458 $ 2,380 570 The company's direct labor rate is $22 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.) Customer margin

Answer 1

Solution:

Big Sky Outfitters

Customer Margin - Activity Based Costing

Sales ($1,625 per standard model glider × 13 standard model gliders + $2,380 per custom designed glider × 2 custom designed gliders)		$25,885
Costs:
Direct materials ($458 per standard model glider × 13 + $570 per custom designed glider × 2 custom designed gliders)	$7,094
Direct labor ($22 per direct labor hour × $27.50 direct labor hour per standard model glider × 13 standard model gliders + $22 per direct labor hour ×$ 32 direct labor hour per custom designed glider × 2 custom designed gliders)	$9,273
Supporting direct labor ($16 per direct labor hour × $27.50 direct labor hour per standard model glider × 13 Standard model gliders + $16 per direct labor hour × $32 direct labor hour per custom designed glider × 2 custom designed gliders)	$6,744
Order processing ($194 × 4)	$776
Custom design processing ($256 ×2 custom designs)	$512
Customer service ($434 × 2)	$868
		$25,267
Customer margin		$618

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