Thermal Rising, Inc., makes paragliders for sale through specialty sporting good
ID: 2493475 • Letter: T
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: Activity Cost Pool Activity Rate Supporting direct labor $ 20 per direct labor-hour Order processing $ 196 per order Custom designing processing $ 252 per custom design Customer service $ 426 per customer 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: Standard Model Custom Design Number of gliders 12 2 Number of orders 2 2 Number of custom designs 0 2 Direct labor-hours per glider 29.50 31.00 Selling price per glider $ 1,700 $ 2,390 Direct materials cost per glider $ 482 $ 576 The company’s direct labor rate is $20 per hour. Required: Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Do not round intermediate calculations.)Explanation / Answer
Calculation of Customer Margin
Particulars
Standard (in $)
Custom (in $)
Total Sales A
20,400
(12*1700)
4,780
(2*2390)
Cost
Direct Labour
7,080
(12*29.50*20)
1,240
(2*31.00*20)
Direct Materials
5,784
(12*482)
1,152
(2*576)
Order Processing
392
(2*196)
392
(2*196)
Custom designing processing
0
(0*252)
504
(2*252)
Total Cost B
13,256
3,288
Margin (A-B)
7,144
1,492
Customer Margin = Standard Margin + Custom Margin – Customer Service
Customer Margin = $7,144 + $1,492 - $426 = $8,210
Particulars
Standard (in $)
Custom (in $)
Total Sales A
20,400
(12*1700)
4,780
(2*2390)
Cost
Direct Labour
7,080
(12*29.50*20)
1,240
(2*31.00*20)
Direct Materials
5,784
(12*482)
1,152
(2*576)
Order Processing
392
(2*196)
392
(2*196)
Custom designing processing
0
(0*252)
504
(2*252)
Total Cost B
13,256
3,288
Margin (A-B)
7,144
1,492
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