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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 $355,050 $425,000
Direct materials costs $30,000 $50,000
Direct labor costs 150,000 250,000
Overhead costs 85,050 265,050 145,000 445,000
Operating income (loss) $90,000 $(20,000)

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 $85,050 Hours of travel
Setup time 105,000 Number of setups
Supervision 40,000 Direct labor cost

Expected Use of Cost Drivers per Product

Commercial

Residential

Scheduling and travel 800 550
Setup time 500

250

1. Compute the activity-based overhead rates for each of the three cost pools

2. Determine the overhead cost assigned to each product line.

3. Compute the operating income for each product line, using the activity based overhead rates.

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