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	Activity Rate
Supporting direct labor	$	18	per direct labor-hour
Order processing	$	200	per order
Custom design processing	$	255	per custom design
Customer service	$	420	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 Model		Custom Design
Number of gliders		15		3
Number of orders		2		3
Number of custom designs		0		3
Direct labor-hours per glider		26.50		34.00
Selling price per glider	$	1,750	$	2,320
Direct materials cost per glider	$	478	$	574

The company’s direct labor rate is $18 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.)

Answer 1

Particulars	Calculation	Amount
Revenue	(1750*15)+(2320*3)	$ 33,210
Costs:-
Direct Materials	(478*15)+(574*3)	$    8,892
Direct Labor	(26.5*18*15)+(34*18*3)	$    8,991
Supporting Direct Labor	(26.5*16*15)+(34*16*3)	$    7,992
Order Processing	(200*2)+(200*3)	$    1,000
Custom design processing	(255*0)+(255*3)	$        765
Customer Service		$        420
Total Costs		$ 28,060
Customer Margin	$33,120 - $28,060	$    5,150