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 $ 16 per direct labor-hour Order processing $ 198 per order Custom design processing $ 262 per custom design Customer service $ 436 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 10 3 Number of orders 2 3 Number of custom designs 0 3 Direct labor-hours per glider 27.50 34.00 Selling price per glider $ 1,700 $ 2,370 Direct materials cost per glider $ 468 $ 576 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. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)

Answer 1

	Standard Model
	Selling price per order (		(10*1700)			17000
	less
	Direct materials cost		(10*468)		4680
	Direct labors		(27.50*10*18)		4950
	order processing		(2*198)		396
	supporting DLH		(27.5*10*16)		4400
	total cost					14426
	margin					2574
	Custom design
	Selling price per order (		(3*2370)			7110
	less
	Direct materials cost		(3*576)		1728
	Direct labors		(3*34*18)		1836
	order processing		(198*3)		594
	custom design processing		(262*3)		786
	Supporting DL		(3*34*16)		1632
	total cost					6576
	margin					534
	total margin				3108
	less customer service				-436
	Customer margin				2672	answer