Exercise 7-5 Product and Customer Profitability Analysis [LO7-4, LO7-5]

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	$	184	per order
Custom design processing	$	263	per custom design
Customer service	$	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:

	Standard Model		Custom Design
Number of gliders		13		3
Number of orders		2		3
Number of custom designs		0		3
Direct labor-hours per glider		27.50		32.00
Selling price per glider	$	1,625	$	2,310
Direct materials cost per glider	$	446	$	580

The companys direct labor rate is $20 per hour.

Required:

Using the companys 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

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