Question

Exercise 4-14 al-a2, b (Video) (Part Level Submission) 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. Revenues Direct materials costs Direct labor costs Overhead costs Operating income (loss) Commercial Residential $328,000 $514,000 $45,000 $50,000 110,000 290,000 108,000 263,000 199,000 539,000 $65,000 $(25,000) 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: Estimated Overhead Activity Cost Pools Cost Drivers Hours of travel Scheduling and travel Setup time Supervision $108,000 119,000 80,000 Number of setups Direct labor cost Estimated Use of Cost Drivers per Product Commercial Residential 550 Scheduling and travel Setup time 800 450 250

Answer 1

• Requirement a1

	Estimated overhead	Cost driver	Overhead rates
	[A]	[B]	[C = A/B
Scheduling and travel	$108,000	1350	$80	per dollar
Setup time	$119,000	700	$170	per setup
Supervision	$80,000	$400,000   [110000 + 290000]	$0.20	per dollar