Question

Exercise 7-5 Product and Customer Profitability Analysis [LO7-4, LO7-5] 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 Activity Rate $ 16 per direct labor-hour 186 per order 260 per custom design $ 426 per customer Customer service 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 11 Number of gliders Number of orders Number of custon designs Direct labor-hours per glider Selling price per giider Direct materials cost per glider 2 3 0 3 29.50 $1,650 $2, 390 448 578 32.00 The company's direct labor rate is $20 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

Total costs assigned to Standard Model Total costs assigned to Custom Design Customer Service cost assigned Total costs assigned to BigSky Outfitters Price charged to BigSky Outfitters Customer margin $16,982 (Ref: Workings] $6,528 [Ref: Workings] $426 [1 customer x $426] $23,936 $25,320 [(11 x $1,650) + (3 x $2,390)] $1,384 ($25320 - $23936]

Workings: Cost Activity Cost Pool Total Activity Activity Rate Assigned Direct material 11 gliders $448 $4,928 Direct labor 324.5 hours $20 $6,490 Supporting direct labor 324.5 hours $16 $5,192 Order processing 2 orders $186 $372 Custom design processing O designs $0 Total costs assigned to Standard Model $16,982 [11 gliders x $448] [324.5 hours x $20 --> labor hours = 11 gliders x 29.5 hours = 324.5 hours] [324.5 hours x $16 --> labor hours = 11 gliders x 29.5 hours = 324.5 hours) [2 orders x $186] O designs x $260] $260 Activity Cost Pool Total Activity Activity Rate $20 Direct material Direct labor Supporting direct labor Order processing Custom design processing 3 gliders $578 96 hours 96 hours $16 3 orders $186 3 designs $260 Total costs assigned to Custom Design Cost Assigned $1,734 $1,920 $1,536 $558 $780 $6,528 [3 gliders x $578] (96 hours x $20 --> labor hours = 3 gliders x 32 hours = 96 hours] (96 hours x $16 --> labor hours = 3 gliders x 32 hours = 96 hours) [3 orders x $186] [3 designs x $260]