Question
Thermal Rising, Incorporated, 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, Incorporated, 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 | $ 190 | per order |
Custom design processing | $ 257 | per custom design |
Customer service | $ 424 | 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 | 14 | 2 |
Number of orders | 1 | 2 |
Number of custom designs | 0 | 2 |
Direct labor-hours per glider | 29.50 | 33.00 |
Selling price per glider | $ 1,925 | $ 2,400 |
Direct materials cost per glider | $ 472 | $ 582 |
The companys direct labor rate is $18 per hour.
Required:
Using the companys activity-based costing system, compute the customer margin of Big Sky Outfitters.
Customer Margin- ?
*Note: $4,408 is not correct
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