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:

  

  

  

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters.(Do not round intermediate calculations.)

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:

Explanation / Answer

Customer Margin

Standard Model Custom Design Particulars Units Rate Amount Units Rate Amount Total Sale 16 1,600 25,600 3 2,320 6,960 32,560 Less : Cost Direct Material 16 460 7,360 3 584 1,752 9,112 Direct Labor 29.50 20 590 33 20 660 1,250 Supporting Direct Labor 29.50 18 531 33 18 594 1,125 Order Processing 2 192 384 3 192 576 960 Custom designing processing 0 267 0 3 267 801 801 Customer Service 16 430 6,880 3 430 1,290 8,170 Customer Margin 9,855 1,287 11,142

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