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	$	194	per order
Custom design processing	$	259	per custom design
Customer service	$	424	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		30.50		33.00
Selling price per glider	$	1,625	$	2,320
Direct materials cost per glider	$	446	$	568

The company’s direct labor rate is $18 per hour.

Answer 1

Standard Model
Selling price per order (		(14*1625)			22750
less
Direct materials cost		(14*446)		6244
Direct labors		(14*30.50*18)		7686
order processing		(1*194)		194
supporting DLH		(14*30.50*18)		7686
total cost					21810
margin					940
Custom design
Selling price per order (		(2*2320)			4640
less
Direct materials cost		(2*568)		1136
Direct labors		(2*33*18)		1188
order processing		(2*194)		388
custom design processing		(2*259)		518
Supporting DL		(2*33*18)		1188
total cost					4418
margin					222
total margin				1162
less customer service				-424
Customer margin				738	answer