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	$	16	per direct labor-hour
Order processing	$	186	per order
Custom design processing	$	268	per custom design
Customer service	$	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 Model		Custom Design
Number of gliders		13		2
Number of orders		2		2
Number of custom designs		0		2
Direct labor-hours per glider		28.50		33.00
Selling price per glider	$	1,650	$	2,360
Direct materials cost per glider	$	458	$	580

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

Standard Model Custom Desi Total Revenue (13 gliders X$ 1.650 per glider) (2 gliders X $ 2,360 per glider) 21,450 $ 26,170 4,720 Direct material cost (13 gliders XS 458 per glider) (2 gliders X $ 580 per glider) 5,954 S 7,114 1,160 Direct Labour cost (13 gliders X 28.50 direct hours per glider X $ 16 per hour)S (2 gliders X 33 direct hours per gliderX $ 16 per hour) 5,928 $ 6,984 1,056 Supporting Direct Labour Cost (13 gliders X 28.50 direct hours per glider X $ 16 per hour)S (2 gliders X 33 direct hours per gliderX $ 16 per hour) 5,928 $ 6,984 1,056 Order processing cost (2 orders X S 186 per order) 372 $ 372 S 744 Custom Design Processing Cost (2 custom designs X S 268 per custom design) 536 $536 Customer Service cost (S 438 per customer) $ 438 Net Margin (Sales Costs $ 3,370 Note: Customer is only one i.e. Big Sky Outfitters. As such, customer service cost would be levied for 1 customer only