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 $ 16 per direct labor-hour $ 184 per order $ 262 per custom design $ 432 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: Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider Standard Custom Model Design 11 3 1 3 0 3 27.50 32.00 $ 1,725 $2,340 $ 470 $ 572 The company's direct labor rate is $20 per hour.

Answer 1

Computation of Customer Margin
Particulars	Standard Model	Custom Design	Total
Sales	19,250	7,020	26,270
Less:
Direct Material Cost	5,170	1,716	6,886
Direct Labour Cost	6,050	1,920	7,970
Overheads:
Supporting Direct labour COST	4,840	1,536	6,376
Order Processing	184	552	736
Custom Design Processing	-	786	786
Less: Customer Service Cost			432
Customer Margin			3,084