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	$	182	per order
Custom design processing	$	260	per custom design
Customer service	$	418	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		15		2
Number of orders		1		2
Number of custom designs		0		2
Direct labor-hours per glider		28.50		33.00
Selling price per glider	$	1,725	$	2,360
Direct materials cost per glider	$	470	$	584

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.)

	Customer margin

Answer 1

		Standard model	Custom Design	Total
A	Number of gliders	15	2
B	Number of orders	1	2
C	Number of custom designs	0	2
D	Direct labour-hours per glider	28.5	33
E	Selling price per glider	$1,725	$2,360
F	Direct material cost per glider	$470	$584
	Revenues (A*E)	$25,875	$4,720
	Less: Direct costs:
	Direct material costs(A*F)	$7,050	$1,168
	Direct labour costs (direct labour hours * $16/hr)	$456	$528
		$18,369	$3,024
	Less: Indirect costs:
	Supporting direct labour (direct labour hours * $18/hr)	$513	$594
	Order processing (No. of orders * $182/order)	$182	$364
	Custom design processing (No. of custom designs * $260)	$0	$520
	Profit margin after allocating costs to both products	$17,674	$1,546	$19,220
	Less: Customer service($418 per customer)			$418
	Net customer margin			$18,802