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 $ 18 per direct labor-hour Order processing $ 198 per order Custom design processing $ 266 per custom design Customer service $ 436 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 12 3 Number of orders 1 3 Number of custom designs 0 3 Direct labor-hours per glider 27.50 32.00 Selling price per glider $ 1,650 $ 2,390 Direct materials cost per glider $ 444 $ 574 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.)

Explanation / Answer

Incremental revenue 26970 =(1650*12)+(2390*3) Costs: Direct materials cost 7050 =(444*12)+(574*3) Direct labor cost 7668 =(27.5*18*12)+(32*18*3) Supporting direct labor 7668 =(27.5*18*12)+(32*18*3) Order processing 792 =198*4 Custom design processing 798 =266*3 Customer service 436 Total costs 24412 Customer margin 2558

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