Question

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	$	16	per direct labor-hour
Order processing	$	190	per order
Custom design processing	$	266	per custom design
Customer service	$	436	per customer

Management would like an analysis of the profitability of a particular customer, Hank Inc., which has ordered the following products over the last 12 months:

	Standard Model		Custom Design
Number of gliders		11		2
Number of orders		2		2
Number of custom designs		0		2
Direct labor-hours per glider		30.50		32.00
Selling price per glider	$	1,750	$	2,360
Direct materials cost per glider	$	462	$	584

The company’s direct labor rate is $20 per hour.

Required:

Using the company’s activity-based costing system, compute the customer margin of Hank Inc.. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)

Answer 1

Overheads allocated:
Activity			Rate	Standard	Custom
				Driver	Oh cost	Driver	OH cost
Supporting labor		16	335.50	5,368	64.00	1,024
Order processing		190	2.00	380	2.00	380
Custom design processing	266	0.00	0	2.00	532
			Total Overheads allocated	5748		1936
Customer Margin
			Standard	Custom	Total
Sales revenue		19250	4,720	23970
Cost:
Material			5082	1,168	6250
Labour cost		6710	1,280	7990
Overheads allocated		5748	1,936	7684
Customer Service				436
Net Customer margin			1610
Answer is $ 1610