Managerial Accounting: E8-5 Thermal Rising, Inc., makes paragliders for sale through

Managerial Accounting: E8-5 Thermal Rising, Inc., makes paragliders for sale through

Managerial Accounting

Exercise 8-5 Product and Customer Profitability Analysis
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. Managementhas 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 $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 - 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 Outfitter.
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