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 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 designing 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 Design Custom Model
Number of gliders 20 3
Number of orders 1 3
Number of custom designs 0 3
Direct labor-hours per glider 26.35 28.00
Selling price per glider $1,850 $2,400
Direct materials cost per glider $564 634
The company's direct labor rate is $19.50 per hour.

Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.

Answer 1

Answer:

$1,144

Explanation:

According to the scenario, computation of the given data are as follow:-

Particular  Amount ($)

Sales 44,200

Less-Direct material cost of grinder 13,182

Less-Direct labor cost 11,915

Less-Supporting direct labor 15,886

Less- Order processing 1,136

Less-customer service 379

Less- Custom designing 558

Margin of customer of big sky outfitters 1,144

Working notes

1 . Sales = Selling Price Per Grinder × No. of Grinder

= $1,850 × 20 + $2,400  × 3

= $37,000 + $7,200

= $44,200

Direct Material Cost of Grinder = Selling Price Per Grinder × No. of Grinder

= $564 × 20 + $634 × 3

= $11,280 + $1,902

= $13,182

Direct Labor Cost = No. of Grinder × Direct Labor Hour - Per Grinder × Direct Labor Rate

= 20 × 26.35 × $19.50 + 3 × 28 × $19.50

= $10,276.5 + $1,638

= $11,914.5

Supporting Direct Labor = No. of Grinder × Direct Labor Hour-Per Grinder × Supporting Direct Labor Per Direct Labor-Hour

=20 × 26.35  × $26 + 3 × 28 × $26

= $13,702 + $2,184

= $15,886

Order Processing = Total No. of Order × Order Processing Per Order

= ( 1+3)  × $284

= 4 × $284

= $1,136

Custom Designing = Total No. of Custom Designing × Price Per Custom Designing

=(0+3) × $186

= $558