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: Activity Cost Pool Activity Rate Supporting direct labor s 18 per direct labor- Order processing Custom design processing $262 per custom design Customer service hour $192 per order $ 422 per customer Management would like an analysis of the profitability of a particular customer, Big Sky Outftters, which has ordered the following products over the last 12 months Standard Custom Model Design Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider pirect materials cost per 16 28.50 32.00 s 1,700 $2,360 460 s 572 glider The company's direct labor rate is $18 per hour Prey 4 of 4

Explanation / Answer

Overheads assigned Standard Custom Total Number of units 16 3 Direct labourr hours per unit 28.5 32 Total DLH 456 96 Overheads cost: Supporting labour (@ $18 per DLH) 8208 1728 9936 Order processing (@ 192 per order) 384 576 960 Custom Design (@262 per custom design) 0 786 786 Customer processing (@ 422 per customer) 422 Total OH cost 8592 3090 12,104 Customer Margin: Standard Custom Total Number of units 16 3 DLH used 456 96 Material cost per unit 460 572 Selling price per unit 1700 2360 Sales revenue 27200 7080 34280 Less: Cost material 7360 1716 9076 Labour 8,208 1,728 9,936 OH cost 8592 3090 12104 Total cost 24160 6534 31116 Customer Margin (Totalsales-Total cost) 3164

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