Product and Customer Profitability Analysis
Updraft Systems, 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 | Activity Rate | |
Supporting direct labor | $18 | per direct labor-hour |
Order processing | $192 | per order |
Custom designing | $261 | per custom design |
Customer service | $426 | per customer |
Management would like an analysis of the profitability of a particular customer, Eagle Wings, which has ordered the following products over the last I2 months:
| Standard Model | Custom Design |
Number of gliders | 10 | 2 |
Number of orders | 1 | 2 |
Number of custom designs | 0 | 2 |
Direct labor-hours per glider | 28.50 | 32.00 |
Selling price perglider | $1,650 | $2,300 |
Direct materials cost per glider | $462 | $576 |
The company’s direct labor rate is S19 per hour.
Required:
Using the company’s activity-based costing system, compute the customer margin of Eagle Wings.
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