Shady Lady sells window coverings to both commercial and residential customers. The following information relates to its budgeted operations for the current year: Revenues Commercial $300,000 Residential $480,000 Direct material costs $ 30,000 $ 70,000 Direct labour costs 100,000 300,000 Overhead costs 55,000 Operating income (loss) 185,000 $115,000 162,000 532,000 $(52,000) The controller, Susan Chan, is concerned about the residential product line. She cannot understand why this line is not more profitable given that window coverings are less complex to install for resi- dential customers. In addition, the residential client base resides close 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. Following are the three activity cost pools and related information she developed: Activity Cost Pools Scheduling and travel Estimated Overhead $84,000 Set-up time 77,000 Supervision 56,000 Scheduling and travel Set-up time Estimated Use of Cost Drivers per Product Commercial 1,000 Residential 680 450 250 Cost Drivers Hours of travel Number of set-ups Direct labour cost Instructions a. Calculate the activity-based overhead rates for each of the three cost pools, and determine the over- head cost assigned to each product line. b. Calculate the operating income for each product line using the activity-based overhead rates. c. What do you believe Susan Chan should do?