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	$	192	per order
Custom design processing	$	270	per custom design
Customer service	$	436	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		3
Number of orders		1		3
Number of custom designs		0		3
Direct labor-hours per glider		26.50		33.00
Selling price per glider	$	1,725	$	2,350
Direct materials cost per glider	$	474	$	576

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	Std model	custom design
No. of gliders	11	3
Direct labor-hours per glider	26.5	33
Total direct labor hours	291.5	99
Direct labor rate per hour	18	18
Total Direct labor cost($)	5247	1782
No. of orders	1	3
order processing cost per order	192	192
Total order processing cost($)	192	576
No. of custom designs	0	3
Custom design processing per custom design	270	270
Total custom design processing cost($)	0	810
No. of customers	11	3
Customer service cost	436	436
Total customer service cost($)	4796	1308

Particulars	Std model	custom design
Selling price per gilder	1725	2350
Less:
Direct Material cost per gilder	474	576
Direct labor cost	5247	594
order processing cost	192	192
custom design cost	0	270
custom service cost	436	436
Customer margin per customer	-4624	282