Venus Creations sells window treatments (shades, blinds, and awnings) to both co

Question

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 $302,600 $481,000 Revenues Direct materials costs$30,900 Direct labor costs Overhead costs $50,500 312,500 104,900 82,600 218,400 150,000 513,000 $(32,000) Operating income (loss) $84,200 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 Scheduling and travel Setup time Supervision $90,500 78,600 63,500 Hours of travel Number of setups Direct labor cost Expected Use of Cost Drivers per Product Commercial Residential Scheduling and travel 750 600 Setup time 360 290 (a1) Compute the activity-based overhead rates for each of the three cost pools. (Round answers to 2 decimal places, e.g. 12.25.) Overhead Rates Scheduling and travel s Setup time Supervision

Explanation / Answer

STATEMENT SHOWING ACTIVITY RATE OF ACTIVITY POOL Activity Total Expected Activity ACTIVITY COST POOL Measures Overheads Activity Rate Scheduling and Travel Hours travel 90,500 1,350 67.04 per hour Setup time Setups 78,600 650 120.92 per setup Supervision Labour cost 63,500 417,400 15.21% of direct labour cost Overhead assigned Commercial Residential Rate Activity inc. OH Activity Inc. Oh Scheduling and Travel 67.04 750 50280 600 40224 Setup time 120.92 360 43531.2 290 35066.8 Supervision 15% 104900 15955.29 312500 47531.25 Total OH 109767 122822 OPERATING INCOME Commercial Residential Sales 302600 481000 Less: Cost Material 30900 50500 Labour 104900 312500 Overheads assigned 109767 122822 Net operating income/ (Loss) 57033 -4822

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