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	$	184	per order
Custom design processing	$	271	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		1		2
Number of custom designs		0		2
Direct labor-hours per glider		26.50		33.00
Selling price per glider	$	1,725	$	2,380
Direct materials cost per glider	$	464	$	578

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.

Answer 1

Answer-

CUSTOMER MARGIN- BIG SKY OUTFITTERS
USING ACTIVITY BASED COSTING METHOD
PRODUCTS		TOTAL
		$
Sales Value	($1725*11 gliders)+($2380*2 gliders)	23735
Less:-Costs
Direct materials	($464*11 gliders )+($578*2 gliders)	6260
Direct labor	{(26.50 hours*11 gliders)*$18 per hours}+(33.00 hours*2 gliders*$18 per hour)	6435
Supporting direct labor	{(26.50 hours*11 gliders)*$18 per hours}+(33.00 hours*2 gliders*$18 per hour)	6435
Order processing	(1 order+2 order)*$184 per order	552
Custom design processing	2 design*$271 per dsign	542
Customer service	1 customer*$422 per customer	422
Total costs		20646
Customer margin		3089