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	$	270	per custom design
Customer service	$	434	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		1		2
Number of custom designs		0		2
Direct labor-hours per glider		30.50		34.00
Selling price per glider	$	1,725	$	2,380
Direct materials cost per glider	$	446	$	572

The company’s direct labor rate is $22 per hour.

Answer 1