Question

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.)

Answer 1