Question

#6: 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 $ 198 per order Custom designing processing $ 256 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 3 Number of orders 2 3 Number of custom designs 0 3 Direct labor-hours per glider 30.50 34.00 Selling price per glider $ 1,675 $ 2,360 Direct materials cost per glider $ 472 $ 584 ________________________________________ 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. (Do not round intermediate calculations.)

Answer 1

OH allocation among products
				Standard Model		Custom Design
Activity			Rate	Activity	OH cost	Activity	OH cost
Supporting labour			18	335.5	6039	102	1836
order processing			198	2	396	3	594
Custom Designing processing			256	0	0	3	768
		Total Overheads cost			6435		3198
CUSTOMER MARGIN:
			Standard	Custom Design
Number of units			11	3
Labuor hours per unit			30.5	34
Total Labour hours			335.5	102
Labour rate per hour			18	18
Material cost per unit			472	584
Selling price per unit			1675	2360
Sales revenue			18425	7080
Less: Material cost			5192	1752
Less: labour cost			6039	1836
Less: OH cost			6435	3198
CUStomer margin			759	294