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
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 | $ | 18 | per direct labor-hour |
Order processing | $ | 184 | per order |
Custom design processing | $ | 264 | per custom design |
Customer service | $ | 428 | 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 | 16 | 2 | ||
Number of orders | 1 | 2 | ||
Number of custom designs | 0 | 2 | ||
Direct labor-hours per glider | 30.50 | 33.00 | ||
Selling price per glider | $ | 1,900 | $ | 2,460 |
Direct materials cost per glider | $ | 468 | $ | 566 |
The companys direct labor rate is $22 per hour.
Required:
Using the companys activity-based costing system, compute the customer margin of Big Sky Outfitters.
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