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 Units produced 3,600 11,600 Unit sales price $500 $200 Direct material per unit $62.50 21.55 Direct labor hours per unit 9.75 5.6 Direct labor hourly rate $20 $20 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 Total Estimated Cost Drivers Overhead $472,500 Hours of travel 420,000 Number of setups 500,000 Direct labor cost 1,392,500 Estimated Use of Cost Drivers per Product Commercial Residential Scheduling and travel 700 Setup time 350 800 hours 250 times Requirement 1: Compute the total direct labor costs of the commercial line and residential line. Commercial Residential Direct labor costs Requirement 2: Compute the overhead costs of the commercial and residential line using the traditional method. Under the traditional method, the overhead costs are allocated to the product lines based on the direct labor costs. Commercial Residential Overhead costs Requirement 3: Compute the operating income for each product line, using the traditional method. Commercial Residential ? Revenues Direct materials costs Direct labor costs Overhead costs Operating income (loss) ? ? ? ? ? ? ? Requirement 4: Compute the activity-based overhead rates for each of the three cost pools. Overhead rates ? I per hour Scheduling and travel Setup time Supervision ? per set up per dollar Requirement 5: Determine the overhead cost assigned to each product line. Commercial Residential ? ? ? Scheduling and travel Setup time Supervision Total costs assigned ? ? ? ? ? Requirement 6: Compute the operating income for each product line, using the activity-based overhead rates. Commercial Residential Revenues ? ? ? ? ? ? Direct materials costs Direct labor costs Overhead costs Operating income (loss)