Product and Customer Profitability Analysis [LO7-4, LO7-5] Thermal Rising, Inc.,
ID: 2416127 • Letter: P
Question
Product and Customer Profitability Analysis [LO7-4, LO7-5] 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 $19.50 per hour. Required: Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.Explanation / Answer
Particulars
Standard Model
Custom Design
No of Gliders
20
3
Selling Price
1,850
2,400
Sales
37,000
7,200
Less: Cost
Direct Material @ 564 & 634 per glider
11,280
1,902
Direct Labor 26.35 & 28 hrs
10,277
1,638
Supporting Labor cost
13,702
2,184
Order Processing Cost
284
852
Cusom Design Processing
558
Customer Serivice
190
190
Total Cost
35,732
7,324
Customer Margin
1,268
(124)
Total Margin
1,145
Direct Material:
Standard=564 x 20=$11,280
Custom =634 X 3=$1,902
Direct Labor:
Standard=26.35 hrs x 20 glidersx 19.5 per hr=$10,277
Custom =28 hrs x 3 gliders x 19.5 per hr=$1,638
Supporting Labor:
Standard=26.35 hrs x 20 gliders x 26 per hr=$13,702
Custom=28 hrs x 3 gliders x 26 per hr=$2,184
Ordering Cost:
Standard= 1 order x $284 per order=$284
Custom=3 orders x $284 per order=$852
As so on….
Particulars
Standard Model
Custom Design
No of Gliders
20
3
Selling Price
1,850
2,400
Sales
37,000
7,200
Less: Cost
Direct Material @ 564 & 634 per glider
11,280
1,902
Direct Labor 26.35 & 28 hrs
10,277
1,638
Supporting Labor cost
13,702
2,184
Order Processing Cost
284
852
Cusom Design Processing
558
Customer Serivice
190
190
Total Cost
35,732
7,324
Customer Margin
1,268
(124)
Total Margin
1,145
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