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 $ 22 per direct labor-hour $ 182 per order $ 265 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 14 3 2 3 0 3 26.50 32.00 $1,750 $2,340 $ 470 $ 570 The company's direct labor rate is $22 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

Computation of customer margin of Big sky outfitters:

CUSTOMER MARGIN $275.

Particulars	Standard	Custom	Total
Sales Revenue	$24500 (14×$1750)	$7020 (3×$2340)	$31520
Less:
Direct material	$6580 (14×$470)	$1710 (3×570)	$8290
Direct labor	$8162 (14×26.5hr×$22)	$2112 (3×32hr×$22)	$10274
Overheads:
Supporting Direct Labor	$8162 (14×26.5hr×$22)	$2112 (3×32hr×$22)	$10274
Order Processing	$364 (2×$182)	$546 (3×$182)	$910
Customer Design Processing	$0 (0×$265)	$795 (3×$265)	$795
Customer Service	-	-	$432
Total cost	-	-	$30975
Customer Margin [Sales Revenue - Total cost]			$275

Notes:

*Sales Revenue = Number of gilders × selling price per glider

*Direct materil cost = Number of gilders × DM cost per glider

*Direct labor cost = Number of glider × Hours required for one glider × direct labor Rate per hour

*Supporting direct labor = Number of gliders × Hours required for one glider × supporting labor Rate per hour

*Order processing = No. Of orders × order cost

*Customer design processing = No. of customer designs × Rate per customer design

*Customer service is $432 per customer.

_______×________

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