Question

Exercise 17-14 a1-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 $298,450 $497,000 Direct materials costs $35,000 $50,000 Direct labor costs 100,000 300,000 Overhead costs 88,450 223,450 177,000 527,000 Operating income (loss) $75,000 $(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 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 Estimated Overhead Cost Drivers Scheduling and travel $88,450 Hours of travel Setup time 117,000 Number of setups Supervision 60,000 Direct labor cost Estimated Use of Cost Drivers per Product Commercial Residential Scheduling and travel 800 650 Setup time 400 250

Answer 1

Requirement | Income Statements Activity Cost Pool Overhead Cost Scheduling and Travel $ 88,450 Set-Up Time $ 117,000 Supervision $ 60,000 Total Overhead Cost $ 265,450 Activity Cost Driver Activity Rate 1,450 Hours of Travel $ 61.00 Per Hours of Travel 650 Number of Set-Ups $ 180.00 Per Set-Up 400,000 Direct Labor Costs $ 0.15 Per $ of Labor Cost Activity Cost Pool Scheduling and Travel Set-Up Time Supervision Total Overhead Cost Activity Rate $ 61.00 $ 180.00 $ 0.15 Commercial $ 48,800 $ $ 72,000 $ $ 15,000 $ $ 135,800 $ Residential 39,650 45,000 45,000 129,650 Particulars Revenues Less : Direct Material Costs $ Less : Direct Labor Costs $ Less : Overheads Costs $ Operating Income / (Loss) Commercial $ 298,450 35,000 100,000 135,800 $ 270,800 $ $ 27,650 A A A Residential $ 497,000 50,000 300,000 129,650 $ 479,650 $ 17,350