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	$	190	per order
Custom design processing	$	259	per custom design
Customer service	$	430	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		28.50		33.00
Selling price per glider	$	1,700	$	2,300
Direct materials cost per glider	$	480	$	576

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. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)

Answer 1

					Amount $
	Standard Model	Standard Model-Working	Custom Design	Custom Design-Working	Total
Sales Revenue	22,100	=13*1700	6,900	=2300*3	29,000
Less: Costs
Direct Materials	6,240	=480*13	1,728	=576*3	7,968
Direct labor Costs	7,410	=13*28.5*20	1,980	=33*3*20	9,390
Activity Costs
Supporting direct labor costs	7,410	=13*28.5*20	1,980	=3*33*20	9,390
Order Processing	380	=190*2	570	=3*190	950
Custom design processing	-		777		777
Customer Service ( 1 Customer )					430
Total Costs	21,440		7,035		28,905
Customer Margin of Big Sky					95
Customer Margin of Big Sky	$ 95