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:

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. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)

Activity Cost Pool Activity Rate Supporting direct labor $ 22 per direct labor-hour Order processing $ 196 per order Custom design processing $ 270 per custom design Customer service $ 430 per customer

Explanation / Answer

STANDARD CUSTOM DESIGN TOTAL Number of units 13 2 15 Labour hours per unit 29.5 32 Total labour hours 383.5 64 447.5 Number of orders 1 2 3 Number of customer design 0 2 2 Sales revenue Standard (13 units@1700) 22100 Customer(2 units@2390) 4780 26880 Less: COST Direct material Standard (13 units@ 446) 5798 Customer(2 units@ 570) 1140 6938 Direct labour @22 per labour hours 8437 1408 9845 Activity cost: Supporting labour(@22 per labour hour) 8437 1408 9845 Order processing(@196 per order) 196 392 588 Customer design (@270 per design ) 0 540 540 Customer Service(@430 per customer) 430 Net Income -768 -108 -1306

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