Question

ALLEEATOR Exercise 17-14 al-a2, b Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year Commercial Residential Revenues $280,000 $484,000 Direct materials costs $30,000 $50,000 Direct labor costs 120,000 280,000 Overhead costs 78,000 225,000 184,000 514,000 Operating income (loss) $60,000 (30.000) 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 baseredes in dose proximity to the company office, so travel costs are not as expensive ona per dient visit for residential customers. Az 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 Estimated Activity Cost Pools Overhead Cost Drivers Scheduling and travel $78,000 Hours of trave Setup time 84,000 Number of setups Supervision 100,000 Direct labor com Estimated Use of Cost Drives per Product Commercial Residential Scheduling and travel 700 800 Setup te 950 250 Compute the activity based overhead rates for each of the three pools (Rooder von decimal) Overhead Rates

Answer 1

Ans a.
Calculation of Activity based OH Rate
Acitivity cost pool	Estimated OH cost=a	Cost Driver=b	Total use of Cost driver=c	Activity Rate=a/c
Scheduling & Travel	78,000	Hrs of Travel	1,300	$                   60.00	per Hr
Set Up Time	84,000	no of set up	600	$                 140.00	per set up
Supervision	100,000	per $ of Direct Labor cost	400,000	$                     0.25	per $ of Direct labor cost

Ans b.
OH Cost assignment to each Product line.		Commercial	Residential
Acitivity cost pool	Activity Rate=d	cost Driver Used =e	OH cost Assigned =d*e	cost Driver Used =f	OH cost Assigned =d*f
Scheduling & Travel	$                   60.00	700	$          42,000	600	$                                36,000
Set Up Time	$                 140.00	350	$          49,000	250	$                                35,000
Supervision	$                     0.25	120,000	$          30,000	280,000	$                                70,000
Total OH Assigned			$        121,000		$                              141,000

Ans c.
Operating Income Satement for both Product Lines
Product Line	Commercial	Residential
Particulatrs	Amt $	Amt $	Amt $	Amt $
Revenue		288,000		484,000
Operating Expenses
Direct Materials	30,000		50,000
Direct Labor	120,000		280,000
Overhead cost assigned(ABC)	121,000		141,000
Total Operating Cost		271,000		471,000
Net Operating Income/(Loss)		17,000		13,000