Question

COBRA SYSTEMS

Cobra Systems, Inc., makes gliders for sale through specialty sporting goods stores.

The company has a standard glider model, but also produces custom-designed gliders.

Cobra management has designed an activity-based costing system with the following

activity cost pools and activity rates:

Activity Cost Pool                                      Activity Rate

Supporting Manufacturing                                   $18 per direct labor hour

Order processing                                                $192 per order

Custom designing                                               $261 per custom design

Customer service                                                $426 per customer

Management would like an analysis of the profitability of a particular customer, Eagle Wings,

which has ordered the following products over the last 12 months:

                                                         Standard Model                  Custom Design

Number of gliders                                        10                                                    2

Number of orders                                          1                                                     2

Number of custom designs                            0                                                     2

Director labor hours per glider                    28.5                                               32.0

Selling price per glider                             $1,650                                           $2,300

Direct materials cost per glider                   $462                                              $576

The company’s direct labor rate is $19 per hour.

Assignment:

Using the company’s activity-based costing system, compute the customer margin of Eagle Wings.

Answer 1