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 Supporting direct labor Order processing Custom design processing Customer service Activity Rate $ 20 per direct labor-hour $ 202 per order $ 255 per custom design $ 426 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 14 NNN 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 32.00 $ 1,650 $2,360 $ 468 $ 584 The company's direct labor rate is $16 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

Calculation of customer margin of Big Sky Outfitters is shown below
Customer margin	Sales revenue - Cost of customer
	Standard model	Custom design	Total
Sales revenue (14*1650; 2*2360)	$23,100	$4,720	$27,820
Less: Cost of customer
Direct material costs (14*468; 2*584)	$6,552	$1,168	$7,720
Direct labor costs	$6,384	$1,024	$7,408
	(14*28.50*16)	(2*32*16)
Supporting direct labor	$7,980	$1,280	$9,260
	(20*28.50*14)	(20*32*2)
Order processing (202*1; 202*2)	$202	$404	$606
Custom design processing (255*0; 255*2)	$0	$510	$510
Customer service (426*1)			$426
Total costs of customer			$25,930
Customer margin			$1,890	(27820-25930)