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	$	20	per direct labor-hour
Order processing	$	188	per order
Custom design processing	$	263	per custom design
Customer service	$	426	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		12		3
Number of orders		1		3
Number of custom designs		0		3
Direct labor-hours per glider		29.50		34.00
Selling price per glider	$	1,700	$	2,380
Direct materials cost per glider	$	460	$	570

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

	Stabdard Model	Custom Design	Total
Sales Revenue (12*$1,700); (3*$2,380)	$20,400	$7,140	$27,540
Less: Expenses -
Direct materials (12*$460); (3*$570)	-$5,520	-$1,710	-$7,230
Direct labor (12*29.50*$20); (3*34*$20)	-$7,080	-$2,040	-$9,120
Supporting direct labor (12*29.50*$20); (3*34*$20)	-$7,080	-$2,040	-$9,120
Processing cost ($188*1); ($188*3)	-$188	-$564	-$752
Customer design cost ($263*0); ($263*3)	$0	-$789	-$789
Customer service cost ($426*1)			-$426)
Customer margin of Big Sky			$103