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	$	182	per order
Custom design processing	$	266	per custom design
Customer service	$	416	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		2		2
Number of custom designs		0		2
Direct labor-hours per glider		27.50		34.00
Selling price per glider	$	1,725	$	2,370
Direct materials cost per glider	$	472	$	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	($1725*14)+($2370*2)	28890
Less:-Costs
Direct materials	($472*14)+($578*2)	7764
Direct labor	(27.50*14*$18)+(34*2*$18)	8154
Supporting direct labor	(27.50*14*$16)+(34*2*$16)	7248
Order processing	(2 order+2 order)*$182 per order	728
Custom design processing	2 design*$266 per dsign	532
Customer service	1 customer*$416 per customer	416
Customer margin		4048