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 | 28.00 | ||
| 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.
Required:
Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters.
| Big Sky Outfitters Customer Margin—Activity-Based Costing | ||||
| Sales ($1,850 per standard model glider × 20 standard model gliders + $2,400 per custom designed glider × 3 custom designed gliders) | $ | 44,200 | ||
| Costs: | ||||
| Direct materials ($564 per standard model glider × 20 standard model gliders + $634 per custom designed glider × 3 custom designed gliders) | $ | 13,182 | ||
| Direct labor ($19.50 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $19.50 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders) | 11,915 | |||
| Supporting direct labor ($26 per direct labor-hour × 26.35 direct labor-hours per standard model glider × 20 standard model gliders + $26 per direct labor-hour × 28 direct labor-hours per custom designed glider × 3 custom designed gliders) | 15,886 | |||
| Order processing ($284 per order × 4 orders) | 1,136 | |||
| Custom design processing ($186 per custom design × 3 custom designs) | 558 | |||
| Customer service ($379 per customer × 1 customer) | 379 | 43,056 | ||
| Customer margin | $ | 1,144 | ||
