Exercise 7-5 Product and Customer Profitability Analysis [LO7-4, LO7-5]
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 | $ | 261 | per custom design |
Customer service | $ | 422 | 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 | 2 | 2 | ||
Number of custom designs | 0 | 2 | ||
Direct labor-hours per glider | 29.50 | 32.00 | ||
Selling price per glider | $ | 1,675 | $ | 2,300 |
Direct materials cost per glider | $ | 474 | $ | 580 |
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.)
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