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 $18 per hour.

Required:

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)

Activity Cost Pool Activity Rate Supporting direct labor $ 16 per direct labor-hour Order processing $ 200 per order Custom design processing $ 263 per custom design Customer service $ 428 per customer

Explanation / Answer

Customer margin of Big Sky Outfitters Sales ($1,725 per standard model glider × 10 standard model gliders + $2,340 per custom designed glider × 3 custom designed gliders)    24270 Costs Direct materials ($460 per standard model glider × 10 standard model gliders + $586 per cus-tom designed glider × 3 custom designed gliders) 6358 Direct labor ($18.00 per direct labor-hour × 27.50 direct labor-hours per standard model glider × 10 standard model gliders + $18.00 per direct labor-hour × 33 direct labor-hours per custom designed glider × 3 custom de-signed gliders 6732 Supporting direct labor ($16 per direct labor-hour × 27.50 direct labor-hours per standard model glider × 10 standard model gliders + $16 per direct labor-hour × 33 direct labor-hours per custom designed glider × 3 custom designed gliders) 5984 Order processing ($200 per order × 5 orders) 1000 Custom designing ($263 per custom design × 3 custom designs) 789 Customer service ($428 per customer × 1 customer) 428 21291 Customer margin 2979

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