Question

Exercise 17-14 a1-a2, b Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and yesidential customers. The following information relates to its budgeted operations for the current year. Commercial Residential Revenues $365,000 $474,000 Direct materials costs $40,000 $50,000 Direct labor costs 140,000 260,000 Overhead costs 120,000 300,000 184,000 494,000 Operating income (loss) $65,000 $(20,000) The controller, Peggy Kingman, is concerned about the residential product line. She cannot understand why this line is not more profitable given that the installations of window coverings are less complex for residential customers. In addition, the residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two product lines to determine whether a more accurate product costing model can be developed. Here are the three activity cost pools and related information she developed Activity Cost Pools Scheduling and travel Setup time Supervision Estimated Overhead $120,000 144,000 40,000 Cost Drivers Hours of travel Number of setups Direct labor cost Estimated Use of Cost Drivers per Product Commercial Residential Scheduling and travel BOO 700 Setup time 550 250

Answer 1

a)

	Activity cost	/	Activity driver	=	Activity rate
Scheduling and Travel	120000		800+700=1500		$ 80 per hours of travel
Set up time	144000		550+250=800		180 per set up
Supervision	40000		140000+260000=400000		$ .10 per dollar

b)

	COMMERCIAL	RESIDENTIAL
Scheduling and Travel	800*80 = 64000	700*80= 56000
Set up time	550*180= 99000	250*180= 45000
Supervision	140000*.1= 14000	260000*.1= 26000
Total cost assigned	177000	127000

Overhead assigned =Actual activity * Overhead rate

c)

	COMMERCIAL		RESIDENTIAL
Revenue		365000		474000
Direct material cost	40000		50000
Direct labor cost	140000		260000
Overhead	177000	(357000)	127000	(437000)
Operating income /(loss)		8000		37000