Thermal Rising Inc makes paragliders for sale through specia

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:

  

  

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:

  

  

  

Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Do not round intermediate calculations.)

What is the Customer Margin?

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:

Solution

Assigning Overhead Cost to Product Model Using ABC Method Activity Based Overhead Rate Standard Model Custom Design Cost Driver Incurred OH Allocated Cost Driver Incurred OH Allocated Supporting direct labor                              16.00 per dlh                             413 dlh                            6,600.00                      96 dlh                1,536.00 Order processing                           202.00 per order                                  2 orders                               404.00                        3 orders                   606.00 Custom designing processing                           269.00 per custom design                                -   custom designs                                         -                          3 custom designs                   807.00 Customer service                           428.00 per customer                                  1 customer                               428.00                        1 customer                   428.00 Total Indirect Cost                            7,432.00                3,377.00 Calculation of Total Cost - Big Sky Outfitters: Standard Model Custom Design No. of Gliders                                    15                                         3 Direct Materials                        6,660.00                                 1,734 Direct Labor                        8,250.00                                 1,920 Ovrehead Assigned: Supporting direct labor                        6,600.00                           1,536.00 Order processing                           404.00                              606.00 Custom designing processing                                     -                                807.00 Customer service                           428.00                              428.00 Total Cost                     22,342.00                           7,031.00 Calculation of Total Margin: Standard Model Custom Design Total No. of Gliders                              15.00                                   3.00 SP per Glider                        1,675.00                           2,340.00 Sales Revenue                     25,125.00                           7,020.00                 32,145.00 Total Cost                       22,342.00                           7,031.00                 29,373.00 Profit Margin                        2,783.00                              (11.00)                   2,772.00