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	$	194	per order
Custom design processing	$	256	per custom design
Customer service	$	428	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		16		2
Number of orders		1		2
Number of custom designs		0		2
Direct labor-hours per glider		27.50		34.00
Selling price per glider	$	1,750	$	2,340
Direct materials cost per glider	$	466	$	568

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.)

Customer margin ?

Answer 1

Solution

Computation of Customer margin based on activity based costing for Big sky outfitters

Particulars	Standard Model	Custom design	Total
Sales value (Gliders)	$ 28,000 (16 gliders*$ 1750)	$ 4680 (2 gliders*$ 2340)	$ 32,680
Less : Costs
1. Direct materials 2. (Number of gliders* Cost per gliders)	($ 7488) (16 gliders*$ 468)	($ 1136) (2 gliders*$ 568)	($ 8,624)
3. Direct labor (Number of gliders * time per glider* Cost per glider)	$ 8800 (16 gliders* 27.5 hrs per glider* $ 20)	($ 1,360) (2 gliders*34 hrs per glider*$ 20)	($ 10,160)
Less : Overhead costs
1. Order process cost (Number of orders * Cost per order)	($ 194) ( 1 order*$ 194)`	($ 388) (2 orders*$ 194)	($ 582)
2. Supporting labor cost (Number of gliders * time taken per glider* Cost per glider)	($ 8800) (16 gliders* 27.5 hrs per glider* $ 20)	($ 1,360) (2 gliders*34 hrs per glider*$ 20)	($ 10,160)
3. Custom designing process (Number of designs *Cost per design)	-	($ 512) ( 2 custom designs *$ 256)	($ 512)
4. Customer service (Number of customers *Cost per customer)	-	-	($ 428) (1 customer *$ 428)
Customer margin	$ 2,214

Please do rate if my answer was found helpful. Thankyou !!!!!!