Exercise 17-5

Shady Lady sells window coverings (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year.

Exercise 17-5 Shady Lady sells window coverings (shades, blinds, and awnings) to both commercial and residential customers. The following information relates to its budgeted operations for the current year. Commercial Residential $295,300 $480,200 Revenues Direct material costs Direct labor costs Overhead costs $ 29,200 116,500 86,100 $50,500 303,500 150,300 504,300 231,800 Operating income (loss) $ 63,500 ($ 24,100) 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 Scheduling and travel Setup time Supervision Estimated Overhead Cost Drivers $101,850 Hours of travel 79,950Number of setups 54,600 Direct labor cost Expected Use of Cost Drivers per Product Commercial Residential 1,140 450 570 Scheduling and travel Setup time 300