Product and Customer Profitability Analysis

 

PWC Systems, Inc., makes jet skis and other personal watercraft for sale through specialty sporting goods stores. The company has a standard jet ski model, but also makes custom-designed models. Management has designed an activity-based costing system with the following activity cost pools activity rates:

 

Activity Cost Pool Activity Rates

 

Supporting manufacturing $22 per direct labour-hour

Order processing $212 per order

Custom design processing $243 per custom design

Customer service $307 per customer

 

Management would like an analysis of the profitability of a particular customer, Wave Rider, which has ordered the following products over the last 12 months:

 

Standard Customer

Model Design

 

Number of jet skis 16 3

Number of orders 2 3

Number of custom designs 0 3

Direct labour-hours per jet ski 24.5 28.0

Selling price per jet ski $10,600 $13,200

Direct materials cost per jet ski $7,950 $9,240

 

The company's direct labour rate is $24 per hour.

 

Required:

 

Using the company's activity-based costing system, compute the customer margin of Wave Rider.

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