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	$	16	per direct labor-hour
Order processing	$	200	per order
Custom design processing	$	263	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		10		3
Number of orders		2		3
Number of custom designs		0		3
Direct labor-hours per glider		27.50		33.00
Selling price per glider	$	1,725	$	2,340
Direct materials cost per glider	$	460	$	586

The company’s direct labor rate is $18 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

Customer margin of Big Sky Outfitters
Sales ($1,725 per standard model glider × 10 standard model gliders + $2,340 per custom designed glider × 3 custom designed gliders)		24270
Costs
Direct materials ($460 per standard model glider × 10 standard model gliders + $586 per cus-tom designed glider × 3 custom designed gliders)	6358
Direct labor ($18.00 per direct labor-hour × 27.50 direct labor-hours per standard model glider × 10 standard model gliders + $18.00 per direct labor-hour × 33 direct labor-hours per custom designed glider × 3 custom de-signed gliders	6732
Supporting direct labor ($16 per direct labor-hour × 27.50 direct labor-hours per standard model glider × 10 standard model gliders + $16 per direct labor-hour × 33 direct labor-hours per custom designed glider × 3 custom designed gliders)	5984
Order processing ($200 per order × 5 orders)	1000
Custom designing ($263 per custom design × 3 custom designs)	789
Customer service ($428 per customer × 1 customer)	428	21291
Customer margin		2979