Exercise 7-5 Product and Customer Profitability Analysis [LO7-4. L07-5] Thermal

Question

Exercise 7-5 Product and Customer Profitability Analysis [LO7-4. L07-5] Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes costing system with the following activity cost pools and activity rates: Activity Cost Pool Activity Rate per direct Supporting direct labor S 18labor-hour Order $190 per order $253 Custom designing per custom processing Customer service $422 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: Model Design Number of gliders Number of orders Number of custom designs 26.50 33.00 Direct labor-hours per glider Selling price per glider s1.725s2,400 Direct materials cost per s 466 $582 glider The company's direct labor rate is $22 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 28950 =(14*1725)+(2*2400) Costs: Direct materials 7688 =(14*466)+(2*582) Direct labor 9614 =(14*26.5*22)+(2*33*22) Supporting Direct labor 7866 =(14*26.5*18)+(2*33*18) Order processing 570 =(190*1)+(190*2) Custom design processing 506 =253*2 Customer service 422 Total costs Customer margin 26666 2284

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