Question

Exercise 5-5 (Algo) Product and Customer Profitability Analysis (LO5-4, LO5-5] 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 $ 20 per direct labor-hour $ 192 per order $ 255 per custom design $ 428 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:

Answer 1

Thermal Rising Inc.
Customer margin ( Big sky outfitters )- ABC analysis
Standard model
Sales	1700 * 13		22100
Costs:
DL	18 * 29.50 * 13	6903
DM	448 * 13	5824
SDL	20 * 29.50 * 13	7670
OP	192 * 1 order	192
Cus. DP	255 * 0	0
Customer ser.	428 * 1 customer	428
Total Costs			21017
Customer margin ( Std. model )			1083
Custom Design
Sales	2380 * 2		4760
Costs:
DL	31 * 2 * 18	1116
DM	576 * 2	1152
SDL	31 * 2 * 20	1240
OP	192 * 2 orders	384
Cus. DP	255 * 2 custom designs	510
Customer ser.	428 * 1 customer	428
Total Costs			4830
Customer margin ( Custom design )			-70
Total customer margin	1083 - 70		1013