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:

Activity Cost Pool Activity Rate Supporting direct labor $ 20 per direct labor-hour Order processing $ 190 per order Custom designing processing $ 260 per custom design Customer service $ 420 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 15 2 Number of orders 1 2 Number of custom designs 0 2 Direct labor-hours per glider 27.50 31.00 Selling price per glider $ 1,725 $ 2,310 Direct materials cost per glider $ 444 $ 576 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. (Do not round intermediate calculations.)

Explanation / Answer

Revenue 30495 =(1725*15)+(2310*2) Costs: Direct materials cost 7812 =(444*15)+(576*2) Direct labor 8541 =(15*27.5*18)+(2*31*18) Supporting direct labor 9490 =(15*27.5*20)+(2*31*20) Order processing 570 =(1*190)+(2*190) Custom designing processing 520 =260*2 Customer service 420 27353 Customer margin 3142

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