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	$	20	per direct labor-hour
Order processing	$	200	per order
Custom design processing	$	264	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		11		3
Number of orders		1		3
Number of custom designs		0		3
Direct labor-hours per glider		30.50		33.00
Selling price per glider	$	1,700	$	2,340
Direct materials cost per glider	$	470	$	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

Answer 1