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:

Activity Cost Pool	Activity Rate
Supporting direct labor	$	20	per direct labor-hour
Order processing	$	194	per order
Custom design processing	$	264	per custom design
Customer service	$	422	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 Model		Custom Design
Number of gliders		12		2
Number of orders		1		2
Number of custom designs		0		2
Direct labor-hours per glider		26.50		31.00
Selling price per glider	$	1,675	$	2,360
Direct materials cost per glider	$	470	$	578

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.)

Answer 1

Revenue		24820	=(1675*12)+(2360*2)
Costs:
Direct materials	6796		=(470*12)+(578*2)
Direct labor	6840		=(26.5*18*12)+(31*18*2)
Supporting Direct labor	7600		=(26.5*20*12)+(31*20*2)
Order processing	582		=(1*194)+(2*194)
Custom design processing	528		=(2*264)
Customer service	422
Total costs		22768
Customer margin		2052