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 $ 202 per order Custom design processing $ 265 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 14 2 Number of orders 1 2 Number of custom designs 0 2 Direct labor-hours per glider 26.50 33.00 Selling price per glider $ 1,700 $ 2,390 Direct materials cost per glider $ 464 $ 570 The company’s direct labor rate is $20 per hour. Required: Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Do not round intermediate calculations. Round your final answer to the nearest dollar.)

Answer 1

	Activity Cost Pool	Activity Rate
	Supporting DL	20.00	Per DL
	Order Processing	202.00	Per Order
	Custom Design	265.00	Per Custom Design
	Customer Service	432.00	Per Customer
		Standard	Custom Design
	Number of Gliders	14.00	2.00
	Number of Order	1.00	2.00
	Number of Custom Designs	0.00	2.00
	DL Hours Per Glider	26.50	33.00
	Selling Price	1700	2390
	DM Per Glider	464	570
	Margin Calculation:	Standard	Custom Design
	Selling Price	23,800.00	4,780.00	(SP Per Unit*No of Gliders)
	Less:
	DM Per Glider	6,496.00	1,140.00	(DM Per Unit*No of Gliders)
	DL Cost Per Glider	7,420.00	1,320.00	(DLH*Rate(20))* No of Gliders
	Allocation of Cost by ABC:
	Supporting DL	7,420.00	1,320.00	(DLH*20)* No of Gliders
	Order Processing	202.00	404.00	(No of Orders*202)
	Custom Design	0.00	530.00	(No of C Design*265)
	Customer Service	432.00	432.00
	Margins	1,830.00	-366.00
		1,464.00