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 Supporting direct labor Order processing Custom design processing Customer service Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months: Number of gliders Number of orders Number of custom designs Activity Rate $ 22 per direct labor-hour $ 200 per order $ 254 per custom design $ 426 per customer Direct labor-hours per glider Selling price per glider Direct materials cost per glider The company's direct labor rate is $20 per hour. Customer margin Standard Model 15 1 0 28.50 $ 1,925 $ 456 Custom Design 3 33.00 $ 2,470 $ 576 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.
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 Supporting direct labor Order processing Custom design processing Customer service Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over the last 12 months: Number of gliders Number of orders Number of custom designs Activity Rate $ 22 per direct labor-hour $ 200 per order $ 254 per custom design $ 426 per customer Direct labor-hours per glider Selling price per glider Direct materials cost per glider The company's direct labor rate is $20 per hour. Customer margin Standard Model 15 1 0 28.50 $ 1,925 $ 456 Custom Design 3 33.00 $ 2,470 $ 576 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.
Chapter1: Financial Statements And Business Decisions
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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![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
Supporting direct labor
Order processing
Custom design processing
Customer service
Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over
the last 12 months:
Number of gliders
Number of orders
Activity Rate
$ 22 per direct labor-hour
$ 200 per order
$ 254 per custom design
$426 per customer
Number of custom designs
Direct labor-hours per glider
Selling price per glider
Direct materials cost per glider
The company's direct labor rate is $20 per hour.
Customer margin
Standard
Model
15
1
0
28.50
$ 1,925
$ 456
Custom
Design
3
3
3
33.00
$ 2,470
$ 576
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.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdb44177a-f132-42e2-8071-3329a164275b%2Fec1c6fad-d846-4012-9472-2f594c459ff0%2F4hbr6v_processed.jpeg&w=3840&q=75)
Transcribed Image Text: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
Supporting direct labor
Order processing
Custom design processing
Customer service
Management wants to calculate the profitability of a particular customer, Big Sky Outfitters, which ordered the following products over
the last 12 months:
Number of gliders
Number of orders
Activity Rate
$ 22 per direct labor-hour
$ 200 per order
$ 254 per custom design
$426 per customer
Number of custom designs
Direct labor-hours per glider
Selling price per glider
Direct materials cost per glider
The company's direct labor rate is $20 per hour.
Customer margin
Standard
Model
15
1
0
28.50
$ 1,925
$ 456
Custom
Design
3
3
3
33.00
$ 2,470
$ 576
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.
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