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Exercise 4-14 a1-a2, b (Video) Venus Creations sells window treatments (shades, blinds, and awnings) to both...

Exercise 4-14 a1-a2, b (Video)

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 $315,000 $404,000
Direct materials costs $30,000 $50,000
Direct labor costs 150,000 250,000
Overhead costs 75,000 255,000 124,000 424,000
Operating income (loss) $60,000 $(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

Estimated Overhead

Cost Drivers

Scheduling and travel $75,000 Hours of travel
Setup time 84,000 Number of setups
Supervision 40,000 Direct labor cost
Estimated Use of Cost Drivers per Product

Commercial

Residential

Scheduling and travel 700 550
Setup time 350 250
Compute the activity-based overhead rates for each of the three cost pools. (Round overhead rate for supervision to 2 decimal places, e.g. 0.38.)

Overhead Rates

Scheduling and travel $ per dollar
Setup time $ per setup
Supervision $ per dollar

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Determine the overhead cost assigned to each product line.

Commercial

Residential

Scheduling and travel $ $
Setup time $ $
Supervision $ $
Total cost assigned $ $

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Compute the operating income for each product line, using the activity-based overhead rates.

Operating income (loss)

Commercial $
Residential $
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Answer #1

1. Computation of Activity based Overhead Rate Particulars Activity cost Activity driver Activity rate Scheduling and Travel

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