Complete Thermal Rising, Inc., makes paragliders for sale through specialty spor

Question

Complete Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The com­pany has a standard paragliders 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: Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters

Explanation / Answer

Customer Margin of Big Sky Outfitters is calculated below:(separately for the standard and custom models)

standard model custom design Total no of gliders 20 3 23 Cost: direct materials: 564*20 11280 11280 634*3 1902 1902 direct labor: 26.35*20*19.5 10277 10277 28.00*3*19.5 1638 1638 supporting direct labor: 26.35*20*26 13702 13702 28*3*26 2184 2184 order processing cost: 1*284 284 284 3*284 852 852 custom design: 0 186*3 558 558 customer service costs 379 379 758 35922 7513 43435 Sales revenue: 20*1850 37000 3*2400 7200 44200 Margin 1079 -313 766

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