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	$	192	per order
Custom design processing	$	254	per custom design
Customer service	$	420	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		12		3
Number of orders		2		3
Number of custom designs		0		3
Direct labor-hours per glider		30.50		34.00
Selling price per glider	$	1,750	$	2,350
Direct materials cost per glider	$	450	$	566

The company’s direct labor rate is $22 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.)

Customer Margin-

Answer 1

	Computation of Customer Margin
	Particulars	Standard Model	Custom Design	Total
	Sales	21,000	7,050	28,050
	Less:
	Direct Material Cost	5,400	1,698	7,098
	Direct Labour Cost	8,052	2,244	10,296
	Overheads:
	Supporting Direct labour COST	7,320	2,040	9,360
	Order Processing	384	576	960
	Custom Design Processing	-	762	762
	Less: Customer Service Cost			420
	Customer Margin			(846)