Question
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
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 Pool Activity 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
Model Design
Number of jet skis 16 3
Number of orders 2 3
Number of custom designs 0 3
Direct labour-hours per jet ski 24.5 28.0
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.
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