Exercise 7-5 Product and Customer Profitability Analysis [LO7-4, LO7-5 Thermal R
ID: 2541286 • Letter: E
Question
Exercise 7-5 Product and Customer Profitability Analysis [LO7-4, LO7-5 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 Supporting direct labor Order processing Custom designing processing Customer service Activity Rate S 18 per direct labor-hour $ 186 per order $ 267 per custom design $ 428 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outitters, which has ordered the following products over the last 12 months: Standard Custom Model Design Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider 27.50 33.00 $1,650 $2,320 $ 472 $ 582 The company's direct labor rate is $18 per hour Required: Using the company's activity-based oosting system, compute the customer margin of Big Sky Outfiters. (Do not round intermediate calculations.) Hints References eBook& Resources Hint 1 Check my workExplanation / Answer
Customer Margin $ 1,274 Explanation Sales $ 16,500 $ 4,640 $ 21,140 Less: Material $ 4,720 $ 1,164 $ 5,884 Supporting direct labor $ 4,950 $ 1,188 $ 6,138 Supporting direct labor $ 4,950 $ 1,188 $ 6,138 Order processing $ 372 $ 372 $ 744 Custom design processing $ 534 $ 534 Total product wise profit $ 1,508 $ 194 $ 1,702 Customer service $ 428 Total customer margin $ 1,274
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