Question

WK E2 HOHE Exercise 4-14 a1-a2, b (Video) Venus Creations sells window treatments (shades, blinds, and awnings) to Ce40both commercial and residential customers. The following information relates to its budgeted operations for the current year 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: 7,000 Nmberef Setup m Compute the activity-based overhead rates for each of the three cost pools. (Round overhead rate for supervision to 2 decimal places e.9. 0.38.) Determine the overhead cost assigned to each product line. Setup tne Compute the operating income for each product line, using the activity- based overhead rates. esidenbal

Answer 1

1				Overhead cost	Activity measure		Total activity	Activity rate
				a			b	(a/b)
	Scheduling and travel			97500	Hours of travel		1500	65
							(750+750)
	Setup time			117000	Number of setups		650	180
							(400+250)
	Supervision			140000	Direct labor cost		400000	0.35
							(120000+280000)
2	Overhead cost assigned to each product line:
				Commercial			Residential
				Activity measure	Activity rate	Overhead assigned	Activity measure	Activity rate	Overhead assigned
				1	2	(1*2)	3	4	(3*4)
	Scheduling and travel			750	65	48750	750	65	48750
	Setup time			400	180	72000	250	180	45000
	Supervision			120000	0.35	42000	280000	0.35	98000
	Total cost assigned					162750			191750
3	Operating income for each product line:
					Commercial		Residential
					$	$	$	$
	Revenues					317500		557000
	Direct materials cost				30000		50000
	Direct labor costs				120000		280000
	Overhead costs				162750	312750	191750	521750
	Operatig income (loss)					4750		35250