What causes differences between volume and activity based costing systems in terms of product, selling price and product profitability
And why the two systems provide different customer profitability
What causes differences between volume and activity based costing systems in terms of product, selling price and product profitability
And why the two systems provide different customer profitability
Related questions
Updraft Systems, Inc., makes paragliders for sale throughspecialty sporting goods stores. The company has a standardparaglider model, but also makes custom-designed paragliders.Management has designed an activity-based costing system with thefollowing activity cost pools and activity rates: |
| Activity CostPool | Activity Rate | ||
| Supporting directlabor | $ | 18 | per direct labor-hour |
| Orderprocessing | $ | 190 | per order |
| Customdesigning | $ | 265 | per custom design |
| Customerservice | $ | 422 | per customer |
Management would like an analysisof the profitability of a particular customer, Eagle Wings, whichhas ordered the following products over the last 12 months: |
| Standard Model | Custom Design | |||
| Number ofgliders | 12 | 3 | ||
| Number oforders | 2 | 3 | ||
| Number of customdesigns | 0 | 3 | ||
| Direct labor-hoursper glider | 26.50 | 32 | ||
| Selling price perglider | $ | 1,725 | $ | 2,370 |
| Direct materialscost per glider | $ | 472 | $ | 568 |
| The companyâs direct labor rateis $20 per hour. |
| Required: |
Using the companyâs activity-based costing system, compute thecustomer margin of Eagle Wings.(Leave no cells blank - becertain to enter "0" wherever required. Loss amount should beindicated with a minus sign. Do not round intermediatecalculations. Round your final answer to the nearest dollar amount.Omit the "$" sign in your response.) |
| Customer margin | $ |
