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 ....................... $26 per direct labor-hour
Order processing ................................ $284 per order
Custom design processing ................. $186 per custom design
Customer service ............................... $379 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 | 20 | 3 |
Number of orders | 1 | 3 |
Number of custom designs | 0 | 3 |
Direct labor-hours per glider | 26.35 | 28 |
Selling price per glider | $ 1850 | $ 2400 |
Direct materials cost per glider | $ 564 | $ 634 |
The companys direct labor rate is $19.50 per hour.
Required:
Using the companys activity-based costing system, compute the total customer margin.
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