Question

1.

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	$	16	per direct labor-hour
Order processing	$	188	per order
Custom design processing	$	268	per custom design
Customer service	$	426	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		14		2
Number of orders		2		2
Number of custom designs		0		2
Direct labor-hours per glider		27.50		32.00
Selling price per glider	$	1,675	$	2,310
Direct materials cost per glider	$	464	$	580

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 = ___________________

3. Fogerty Company makes two products—titanium Hubs and Sprockets. Data regarding the two products follow:

	Direct Labor-Hours per Unit	Annual Production
Hubs	0.70	20,000	units
Sprockets	0.30	50,000	units

Additional information about the company follows:

1. Hubs require $23 in direct materials per unit, and Sprockets require $15.

2. The direct labor wage rate is $10 per hour.

3. Hubs require special equipment and are more complex to manufacture than Sprockets.

4. The ABC system has the following activity cost pools:

	Estimated		Activity
Activity Cost Pool (Activity Measure)	Overhead Cost		Hubs	Sprockets	Total
Machine setups (number of setups)	$	23,760	110	88	198
Special processing (machine-hours)	$	122,500	4,900	0	4,900
General factory (organization-sustaining)	$	299,000	NA	NA	NA

Required:

1. Compute the activity rate for each activity cost pool.

	Activity Cost Pool Activity Rate Machine setups    per setup Special processing per MH

2. Determine the unit product cost of each product according to the ABC system.

(Do not round intermediate calculations. Round your answers to 2 decimal places.)

	Hubs Sprockets Direct materials Direct labor Overhead Unit cost

Answer 1

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