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	$	202	per order
Custom design processing	$	259	per custom design
Customer service	$	430	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		3
Number of orders		2		3
Number of custom designs		0		3
Direct labor-hours per glider		30.50		33.00
Selling price per glider	$	1,675	$	2,310
Direct materials cost per glider	$	454	$	576

The company’s direct labor rate is $20 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	($1675*14 gliders)+($2310*3 gliders)	30380
Less:-Costs
Direct materials	($454*14 gliders )+($576*3 gliders)	8084
Direct labor	{(30.50 hours*14 gliders)*$20 per hours}+(33.00 hours*3 gliders*$20 per hour)	10520
Supporting direct labor	{(30.50 hours*14 gliders)*$22 per hours}+(33.00 hours*3 gliders*$22 per hour)	11572
Order processing	(2 order+3 order)*$202 per order	1010
Custom design processing	3 design*$259 per dsign	777
Customer service	1 customer*$430 per customer	430
Total costs		32393
Customer margin		-2013