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.