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 $ 200 per order Custom design processing $ 258 per custom design Customer service $ 424 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 15 3 Number of orders 2 3 Number of custom designs 0 3 Direct labor-hours per glider 29.50 31.00 Selling price per glider $ 1,700 $ 2,370 Direct materials cost per glider $ 444 $ 576 The company’s direct labor rate is $18 per hour. Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (Round your intermediate calculations and final answer to the nearest whole dollar amount. Loss amounts should be entered with a minus sign.)
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.
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 | $ | 200 | per order |
| Custom design processing | $ | 258 | per custom design |
| Customer service | $ | 424 | 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 | 15 | 3 | ||
| Number of orders | 2 | 3 | ||
| Number of custom designs | 0 | 3 | ||
| Direct labor-hours per glider | 29.50 | 31.00 | ||
| Selling price per glider | $ | 1,700 | $ | 2,370 |
| Direct materials cost per glider | $ | 444 | $ | 576 |
The company’s direct labor rate is $18 per hour.
Using the company’s activity-based costing system, compute the customer margin of Big Sky Outfitters. (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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