Problem
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
|
$
|
20
|
per direct labor-hour
|
|
Order processing
|
$
|
196
|
per order
|
|
Custom designing processing
|
$
|
268
|
per custom design
|
|
Customer service
|
$
|
428
|
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
|
|
12
|
|
3
|
|
Number of orders
|
|
2
|
|
3
|
|
Number of custom designs
|
|
0
|
|
3
|
|
Direct labor-hours per glider
|
|
29.50
|
|
34.00
|
|
Selling price per glider
|
$
|
1,650
|
$
|
2,340
|
|
Direct materials cost per glider
|
$
|
458
|
$
|
566
|
The company's direct labor rate is $16 per hour.
Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.