Exercise 7-5 (Algo) Product and Customer Profitability Analysis [LO7-4, LO7-5]

Thermal Rising, Incorporated, makes paragliders for sale through specialty sporting goods stores. The company has a standard paraglider model, but also makes custom-designed paragliders. Management designed an activity-based costing system with the following activity cost pools and activity rates:

Activity Cost Pool	Activity Rate
Supporting direct labor	$ 22	per direct labor-hour
Order processing	$ 200	per order
Custom design processing	$ 271	per custom design
Customer service	$ 418	per customer

Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months:

	Standard Model	Custom Design
Number of gliders	11	2
Number of orders	2	2
Number of custom designs	0	2
Direct labor-hours per glider	29.50	32.00
Selling price per glider	$ 1,850	$ 2,480
Direct materials cost per glider	$ 460	$ 572

The company's direct labor rate is $18 per hour.

Required:

Using the company's activity-based costing system, compute the customer margin of Big Sky Outfitters.

Note: Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.

Answer is complete but not entirely correct.

 

Customer margin

$