Thermal Rising, Inc., makes paragliders for sale through specialty sporting good

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:

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:

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters.(Do not round intermediate calculations.)

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:

Explanation / Answer

Sales

$

29,600

Costs:

Direct materials

$

8,264

Direct labor

10,180

Supporting direct labor

10,180

Order processing

760

Custom designing

786

Customer service

428

30,598 with a tolerance of ±0.5

Customer margin

$

998 with a tolerance of ±0.5

Sales ($1,600 per standard model glider × 14 standard model gliders + $2,400 per custom designed glider × 3 custom designed gliders)

$

29,600

Costs:

Direct materials ($466per standard model glider × 14 standard model gliders + $580per custom designed glider × 3 custom designed gliders)

$

8,264

Direct labor ($20 per direct labor-hour × 29.50 direct labor-hours per standard model glider × 14 standard model gliders + $20 per direct labor-hour × 32 direct labor-hours per custom designed glider × 3 custom designed gliders)

10,180

Supporting direct labor ($20 per direct labor-hour × 29.50 direct labor-hours per standard model glider × 14 standard model gliders + $20 per direct labor-hour × 32 direct labor-hours per custom designed glider × 3 custom designed gliders)

810,180

Order processing ($190per order × 4 orders)

2760

Custom designing ($262 per custom design × 3 custom designs)

786

Customer service ($428per customer × 1 customer)

428

Customer margin 998

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