Product and Customer Profitability Analysis

PWC Systems, Inc., makes jet skis and other personal watercraft for sale through specialty sporting goods stores. The company has a standard jet ski model, but also makes custom-designed models. Management has designed an activity-based costing system with the following activity cost pools activity rates:

Activity Cost PoolActivity Rates

Supporting manufacturing$22 per direct labour-hour

Order processing$212 per order

Custom design processing$243 per custom design

Customer service$307 per customer

Management would like an analysis of the profitability of a particular customer, Wave Rider, which has ordered the following products over the last 12 months:

Standard Customer

ModelDesign

Number of jet skis163

Number of orders 23

Number of custom designs03

Direct labour-hours per jet ski24.528.0

Selling price per jet ski$10,600$13,200

Direct materials cost per jet ski$7,950$9,240

The company's direct labour rate is $24 per hour.

Required:

Using the company's activity-based costing system, compute the customer margin of Wave Rider.