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In: Accounting

Exercise 6-5 Product and Customer Profitability Analysis [LO6-4, LO6-5] Thermal Rising, Inc., makes paragliders for sale...

Exercise 6-5 Product and Customer Profitability Analysis [LO6-4, LO6-5]

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 $ 26 per direct labor-hour
Order processing $ 284 per order
Custom design processing $ 186 per custom design
Customer service $ 379 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 20 3
Number of orders 1 3
Number of custom designs 0 3
Direct labor-hours per glider 26.35 28.00
Selling price per glider $ 1,850 $ 2,400
Direct materials cost per glider $ 564 $ 634


The company’s direct labor rate is $19.50 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.)

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