Question

PWC Systems Inc. makes personal watercraft for sale through specialty sporting goods stores. The company has a standard model but also makes custom-designed models. Management has designed an ABC system with the following activity cost pools and activity rates:

Activity Cost Pool	Activity Rates
Supporting manufacturing	$ 19	per direct labour-hour
Order processing	$215	per order
Custom design processing	$239	per custom design
Customer service	$306	per customer

Management would like an analysis of the profitability of a particular customer, WaveRider, which has ordered the following products over the last 12 months:

	Standard Model		Custom Design
Number of watercraft	18		6
Number of orders	3		6
Number of custom designs	0		6
Direct labour-hours per watercraft	22.0		20.0
Selling price per watercraft	$11,900		$14,500
Direct materials cost per watercraft	$8,600		$9,370

The company’s direct labour rate is $25 per hour.

Required:

Using the company’s ABC system, compute the customer margin of WaveRider.

Sales
Costs:
Direct materials
Direct labour
Supporting manufacturing
Order processing
Custom designing

Answer 1

PWC System- Watercraft
	Standard Model	Custom Design	Total
Sales	$214,200	$87,000	$301,200
	(18*11900)	(6*14500)
Less: Expense
Direct Material Cost	$154,800	$56,220	$211,020
	(18*8600)	(6*9370)
Direct Labor Cost	$9,900	$3,000	$12,900
	(18*22*25)	(6*20*25)
Supporting Manufacturing	$7,524	$2,280	$9,804
	(18*22*19)	(6*20*19)
Order Processing	$645	$1,290	$1,935
	(3*215)	(6*215)
Custom Design Processing	$0	$1,434	$1,434
		(6*239)
Customer Service			$306
Customer Margin	$41,331	$22,776	$63,801