Exercise 7-5 (Algo) Product and Customer Profitability Analysis (L07-4, L07-5] 6 Thermal Rising, Incorporated, 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: 0/0.7 points awarded Scored Activity Cost Pool Supporting direct labor Order processing Custom design processing Customer service Activity Rate $ 20 per direct labor-hour $ 200 per order $ 258 per custom design $ 430 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: Custom Design Number of gliders Number of orders Number of custom designs Direct labor-hours per glider Selling price per glider Direct materials cost per glider Standard Model 12 2 0 28.50 $ 1,950 $ 446 2 2 2 34.00 $ 2,460 $ 568 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.) Customer margin $ 2,892 X 7 Hi-Tek Manufacturing, Incorporated, makes two types of industrial component partsthe B300 and the T500. An absorption costing income statement for the most recent period is shown: 0.67/0.7 points awarded Hi-Tek Manufacturing Incorporated Income Statement Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating loss $ 1,716,000 1,239, 220 476,780 570,000 $ (93,220) Scored Hi-Tek produced and sold 60,400 units of B300 at a price of $20 per unit and 12,700 units of T500 at a price of $40 per unit. The company's traditional cost system allocates manufacturing overhead to products using a plantwide overhead rate and direct labor dollars as the allocation base. Additional information relating to the company's two product lines is shown below: B300 $ 400,700 $ 120,000 T500 $ 162,700 $ 42,400 Direct materials Direct labor Manufacturing overhead Cost of goods sold Total $ 563,400 162,400 513,420 $ 1,239,220 The company has created an activity-based costing system to evaluate the profitability of its products. Hi-Tek's ABC implementation team concluded that $51,000 and $100,000 of the company's advertising expenses could be directly traced to B300 and T500, respectively. The remainder of the selling and administrative expenses was organization-sustaining in nature. The ABC team also distributed the company's manufacturing overhead to four activities as shown below: Activity T500 62,300 Manufacturing Overhead $ 213,920 139,400 100,000 60,100 $ 513,420 Activity Cost Pool (and Activity Measure) Machining machine-hours) Setups (setup hours) Product-sustaining (number of products) Other (organization-sustaining costs) Total manufacturing overhead cost B300 90,500 80 1 NA 260 Total 152,800 340 2 NA 1 NA Required: Required 1 Required 2 Required 3 Compute the product margins for B300 and T500 under the activity-based costing system. (Negative product margins should be indicated by a minus sign. Round your intermediate calculations to 2 decimal places.) B300 T500 Total Product margin $ 209.500 X 243,820 X $ 453,320 *Red text indicates no response was expected in a cell or a formula-based calculation is incorrect; no points deducted
