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	$	186	per order
Custom design processing	$	252	per custom design
Customer service	$	428	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		2
Number of orders		2		2
Number of custom designs		0		2
Direct labor-hours per glider		29.50		33.00
Selling price per glider	$	1,625	$	2,360
Direct materials cost per glider	$	462	$	578

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.)

Answer 1

Answer-

CUSTOMER MARGIN- BIG SKY OUTFITTERS
USING ACTIVITY BASED COSTING METHOD
PRODUCTS		TOTAL
		$
Sales Value	($1625*15 gliders)+($2360*2 gliders)	29095
Less:-Costs
Direct materials	($462*15 gliders )+($578*2 gliders)	8086
Direct labor	{(29.50 hours*15 gliders)*$20 per hours}+(33 hours*2 gliders*$20 per hour)	10170
Supporting direct labor	{(29.50 hours*15 gliders)*$18 per hours}+(33 hours*2 gliders*$18 per hour)	9153
Order processing	(2 order+2 order)*$186 per order	744
Custom design processing	2 design*$252 per dsign	504
Customer service	1 customer*$428 per customer	428
Total costs		29085
Customer margin		10