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 $202 per order
Custom designing processing $254 per custom design
Customer service $432 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 2 3
Number of custom designs 0 3
Direct labor-hours per glider 28.5 34
Selling price per glider $1,650 $2,390
Direct materials cost per glider $480 $576
The company's direct labor rate is $20 per hour.
Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.

Answer 1

Big Sky Outfitters

Computation of Customer Margin

Standard Model Custom Model

Sales $21,450 $7,170

Cost :

Direct materials (6,240) (1,728)

Direct Labour (570) (680)

Supporting direct labor (456) (544)

Order processing (404) (606)

Custom designing processing - (762)

Customer service (432) (432)

Customer Margin 13,348 2,418

Step-by-step explanation: