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	$	22	per direct labor-hour
Order processing	$	200	per order
Custom design processing	$	260	per custom design
Customer service	$	424	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		11		2
Number of orders		2		2
Number of custom designs		0		2
Direct labor-hours per glider		29.50		33.00
Selling price per glider	$	1,650	$	2,400
Direct materials cost per glider	$	446	$	566

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.)

Answer 1

Revenue		22950	=(1650*11)+(2400*2)
Costs:
Direct materials	6038		=(446*11)+(566*2)
Direct labor	6248		=(29.5*16*11)+(33*16*2)
Supporting Direct labor	8591		=(29.5*22*11)+(33*22*2)
Order processing	800		=(2*200)+(2*200)
Custom design processing	520		=(2*260)
Customer service	424
Total costs		22621
Customer margin		329