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	$	196	per order
Custom design processing	$	263	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		13		3
Number of orders		1		3
Number of custom designs		0		3
Direct labor-hours per glider		26.50		32.00
Selling price per glider	$	1,675	$	2,330
Direct materials cost per glider	$	462	$	578

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

Answer-

CUSTOMER MARGIN- BIG SKY OUTFITTERS
USING ACTIVITY BASED COSTING METHOD
PRODUCTS		TOTAL
		$
Sales Value	($1675*13 gliders)+($2330*3 gliders)	28765
Less:-Costs
Direct materials	($462*13 gliders )+($578*3 gliders)	7740
Direct labor	{(26.50 hours*13 gliders)*$18 per hours}+(32.00 hours*3 gliders*$18 per hour)	7929
Supporting direct labor	{(26.50 hours*13 gliders)*$18 per hours}+(32.00 hours*3 gliders*$18 per hour)	7929
Order processing	(1 order+3 order)*$196 per order	784
Custom design processing	3 design*$263 per dsign	789
Customer service	1 customer*$430 per customer	430
Total costs		25601
Customer margin		3164