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

under Activity based costing overheds are allocated on certain pre determined cost pool basis as already given in question. Summarising the data

Margin on products supplied to Big Sky Outfitters Particulars Standard Custom Design Model Number of Glider Sold 11 2 Sale Value = 1750 per Glider x 11 19250 = 2320 per Glider x 2 4640 Less : Direct Material = 464 x 11 5104 = 572 x 2 1144 Direct Labor =20 per hour x 30.50 hours 610 = 20 per hour x 33 hours 660 Allocation overheads Supporting direct labor = 16 per hour x 30.50 hours 488 = 16 per hpur x 33 hours 528 Order processing = 184 per order x 2 orders 368 = 184 per order x 2 orders 368 Custom designing = NIL = 270 per custom design x 2 designs 540 Total cost other then customner service cost 6570 3240 Margin earned before customer service cost 12680 1400 Margin earned before customer service cost on Standard Glider 12680 on custom design 1400 Total 14080 Less Customer service cost 422 Net margin earned 13658

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