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 $19.50 per hour. Required: Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.

Explanation / Answer

CUSTOMER MARGIN OF BIG SKY OUTFITTERS:

Particulars Standard Model Custom Design No. of Glider 20 3    Total Direct Material costs $11280 $1902 Direct Labor Costs 10276.50 1638 Prime Costs 21556.50 3540 Add: Overheads: Supportive Labor Costs 13702 2184 Custom Design Costs 0 558 Ordering costs 284    852    35542.50 7134 Revenue 37000 7200 Profit before customer service charges 1457.50 66 Total Profit before customer service charges 1523.50 Less: Customer service charges (379) Customer Margin of the year 1144.50 OR 2.58%

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