EXERCISE $75$ Product and Customer Profitability Analysis LO$74,$ LO$75$

Thermal Rising, Inc., makes paragliders for sale through specialty sporting goods stores. The com$-$

pany 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:

The company$$s direct labor rate is $$19\mathrm{.}50$ per hour.

Activity Cost Pool Activity Rates

Supporting direct labor $.................$ $$6$ per direct labor$-$hour

Machine processing $....................$ $$4$ per machine$-$hour

Machine setups $.......................$ $$50$ per setup

Production orders $......................$ $$90$ per order

Shipments $............................$ $$14$ per shipment

Product sustaining $.....................$ $$840$ per product

Total Expected Activity

K$425$ M$67$

Number of units produced per year $...............2002,000$

Direct labor$-$hours $..............................80500$

Machine$-$hours $.................................1001,500$

Machine setups $................................14$

Production orders $...............................14$

Shipments $.....................................110$

Product sustaining $..............................11$

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

Standard

Model

Custom

Design

Number of gliders $...............................203$

Number of orders $................................13$

Number of custom designs $.......................03$

Direct labor$-$hours per glider $......................26\mathrm{.}3528\mathrm{.}00$

Selling price per glider $...........................$ $$1,850$ $$2,400$

Direct materials cost per glider