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 $ 200 per order $ 258 per custom design $ 430 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 Custom Model Design 13 6 NNN Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider 27.50 34.00 $ 1,625 $ 2,370 $ 470 $ 582 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

Ans.	Thermal Rising Inc.
	Particulars	Standard Model	Custom design
	Sales	$21,125	$4,740
	Less: Costs:
	Direct labor	$7,865	$1,496
	Direct materials	$6,110	$1,164
	Order processing	$200	$400
	Supporting cost	$7,865	$1,496
	Custom design	$0	$516
	Total cost	$22,040	$5,072
	Total Profit	-$915	-$332
	*Calculations:
	Particulars	Standard Model	Custom design
	Sales	$1,625*13	$2,370*2
	Less: Costs:
	Direct labor	$27.5*13*$22	$34 * 2 * $22
	Direct materials	$470*13	$582 * 2
	Order processing	$200 * 1	$200 * 2
	Supporting cost	$27.50 * 13 * $22	$34 * 2 * $22
	Custom design	$258 * 0	$258 * 2
	Non-Specific cost = Customers service = 430 per customer
	Customer Margin =   Standard profit + Custom Profit - Non specific cost
	(-$915) + (-$332) - $430
	-$1,677