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	$	182	per order
Custom design processing	$	252	per custom design
Customer service	$	434	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		28.50		32.00
Selling price per glider	$	1,625	$	2,390
Direct materials cost per glider	$	480	$	570

The company’s direct labor rate is $18 per hour.

Required: Please show all work/ math equations used to find the correct answer

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters.

Answer 1

Answer-

Particular	Standard	Custom	Total​
Sales	11*1625 = $17875	2*2390 = $4780	$22,655
Direct Labor	11*28.5*18 = $5643	2*32*18 = $1152	$6795
Direct Material	11*480 = $5280	2*570 = $1140	$6420
Order Processing	1*182 = $182	2*182 = $364	$546
Manufacturing	18*28.5*11 = $5643	18*32*2 = $1152	$6795
Custom Design	NIL	252*2 =$504	$504
Customer Service			$434
Total Margin = Sales-costs			$1161

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