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	$	22	per direct labor-hour
Order processing	$	200	per order
Custom design processing	$	257	per custom design
Customer service	$	428	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		14		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	$	2,370
Direct materials cost per glider	$	468	$	570

The company’s direct labor rate is $16 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

Answer-

CUSTOMER MARGIN- BIG SKY OUTFITTERS
USING ACTIVITY BASED COSTING METHOD
PRODUCTS		TOTAL
		$
Sales Value	($1625*14 gliders)+($2370*2 gliders)	27490
Less:-Costs
Direct materials	($468*14 gliders )+($570*2 gliders)	7692
Direct labor	{(28.50 hours*14 gliders)*$16 per hours}+(32.00 hours*2 gliders*$16 per hour)	7408
Supporting direct labor	{(28.50 hours*14 gliders)*$22 per hours}+(32.00 hours*2 gliders*$22 per hour)	10186
Order processing	(1 order+2 order)*$200 per order	600
Custom design processing	2 design*$257 per dsign	514
Customer service	1 customer*$428 per customer	428
Total costs		26828
Customer margin		662