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
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 | ||||||||
---|---|---|---|---|---|---|---|---|---|
Revenues | $322,500 | $537,500 | |||||||
Direct materials costs | $35,000 | $50,000 | |||||||
Direct labor costs | 120,000 | 280,000 | |||||||
Overhead costs | 87,500 | 242,500 | 232,500 | 562,500 | |||||
Operating income (loss) | $80,000 | $(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:
Activity Cost Pools | Estimated Overhead | Cost Drivers | ||||
---|---|---|---|---|---|---|
Scheduling and travel | $87,500 | Hours of travel | ||||
Setup time | 112,500 | Number of setups | ||||
Supervision | 120,000 | Direct labor cost |
Estimated Use of Cost Drivers per Product | ||||||||
---|---|---|---|---|---|---|---|---|
Commercial | Residential | |||||||
Scheduling and travel | 750 | 500 | ||||||
Setup time | 500 | 250 |
(a1)
Compute the activity-based overhead rates for each of the three cost pools. (Round overhead rate for supervision to 2 decimal places, e.g. 0.38.)
Overhead Rates | |||
---|---|---|---|
Scheduling and travel | $enter a dollar amount per dollar rounded to 2 decimal places | per dollar | |
Setup time | $enter a dollar amount per setup rounded to 2 decimal places | per setup | |
Supervision | $enter a dollar amount per dollar rounded to 2 decimal places | per dollar |
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(a2)
Determine the overhead cost assigned to each product line.
Commercial | Residential | |||
---|---|---|---|---|
Scheduling and travel | $enter a dollar amount | $enter a dollar amount | ||
Setup time | $enter a dollar amount | $enter a dollar amount | ||
Supervision | $enter a dollar amount | $enter a dollar amount | ||
Total cost assigned | $enter a total dollar amount | $enter a total dollar amount |
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10% score reduction after attempt 2
(b)
Compute the operating income for each product line, using the activity-based overhead rates.
Operating income (loss) | |||
---|---|---|---|
Commercial | $enter a dollar amount | ||
Residential | $enter a dollar amount |
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