Updraft Systems. Inc. makes paragliders for sale through specialty sporting goods stores. The...
Question:
Updraft Systems. 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 | $18 per direct labor-hour |
| Order processing | $188 per order |
| Custom designing | $266 per custom design |
| Custom service | $422 per customer |
Management would like an analysis of the profitability of a particular customer. Eagle Wings, which has ordered the following products over the last 12 months:
| Standard Model | Custom Design | |
|---|---|---|
| Number of gliders | 13 | 3 |
| Number of orders | 1 | 3 |
| Number of customer designs | 0 | 3 |
| Direct labor-hours per glider | 30.50 | 32.00 |
| Selling price per glider | $1,625 | $2,320 |
| Direct materials cost per glider | $460 | $580 |
The company's direct labor rate is $20 per hour
Required:
Using the company's activity-based costing system, compute the customer margin of Eagle Wings.
Customer margin _____
Activity-Based Costing to Evaulate Client Margins:
In activity-based costing, the cost per activity for a range of business processes is calculated and used to allocate overhead costs to separate products or clients and/or evaluate the profitability of each.
Answer and Explanation: 1
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The overhead cost assigned to Eagle Wings is:
| Activity Cost Pool | Activity Rate | Cost Drivers consumed | Cost allocated |
|---|---|---|---|
| Supporting direct labor | $ 18... |
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The Seven Steps of Activity-Based Costing
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Activity-based costing takes into account the activities needed to complete products, including the associated costs of each activity. Discover the seven steps of activity-based costing and learn how it is used in organizations.
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