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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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Using multiple attempts will impact your score.

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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