Question

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a...

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 $ 16 per direct labor-hour
Order processing $ 198 per order
Custom design processing $ 267 per custom design
Customer service $ 424 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 11 2
Number of orders 1 2
Number of custom designs 0 2
Direct labor-hours per glider 27.50 31.00
Selling price per glider $ 1,675 $ 2,310
Direct materials cost per glider $ 470 $ 572

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.)
(Got confused rather quick after 3rd step and forgot how to do it)

Homework Answers

Answer #1

Answer-

CUSTOMER MARGIN- BIG SKY OUTFITTERS
USING ACTIVITY BASED COSTING METHOD
PRODUCTS TOTAL
$
Sales Value ($1675*11 gliders)+($2310*2 gliders) 23045
Less:-Costs
Direct materials ($470*11 gliders )+($572*2 gliders) 6314
Direct labor {(27.50 hours*11 gliders)*$18 per hours}+(31.00 hours*2 gliders*$18 per hour) 6561
Supporting direct labor {(27.50 hours*11 gliders)*$16 per hours}+(31.00 hours*2 gliders*$16 per hour) 5832
Order processing (1 order+2 order)*$198 per order 594
Custom design processing 2 design*$267 per dsign 534
Customer service 1 customer*$424 per customer 424
Total costs 20259
Customer margin 2786
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