PWC Systems, Inc. makes jet skis and other personal watercraft for sale through
ID: 2466123 • Letter: P
Question
PWC Systems, Inc. makes jet skis and other personal watercraft for sale through specialty sporting goods stores. The company has a standard jet ski model, but also makes custom-designed models. Management has designed an activity based costing system with the following activity-cost pools and activity rates:
Activity Cost Pool
Activity Rates
Supporting manufacturing
$22 per direct labour-hour
Order processing
$212 per order
Custom design processing
$243 per custom design
Customer service
$307 per customer
Management would like an analysis of the profitability of a particular customer, WaveRider, which has ordered the following products over the last 12 months:
Standard Model
Custom Design
Number of jet skis
16
3
Number of orders
2
3
Number of custom designs
0
3
Direct labour hours per jet ski
24.5
28
Selling price per jet ski
$ 10,600
$ 13,200
Direct materials cost per jet ski
$ 7,950
$ 9,240
The company’s direct labour rate is $24 per hour.
*Using the company’s activity-based costing system, compute the customer margin of WaveRider.
Activity Cost Pool
Activity Rates
Supporting manufacturing
$22 per direct labour-hour
Order processing
$212 per order
Custom design processing
$243 per custom design
Customer service
$307 per customer
Explanation / Answer
Answer:
Wave rider Particulars Standard Model Custom Design Total Sales 169600 39600 209200 Less: Direct costs: Direct material cost 127200 27720 154920 Direct labor cost 9408 2016 11424 Less: overhead cost assigned Supporting manufacturing 8624 1848 10472 Order Processing 424 636 1060 Custom design Processing 0 729 729 Customer service 307 Customer margin 23944 6651 30288Related Questions
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