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

$359.500

$464.000

Direct materials costs

$45.000

$50.000

Direct labor costs

140.000

260,000

Overhead costs

94,500

279,500

184,000

494.000

Operating income (loss)

$80.000

$(30,000)

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:

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

$94,500

Hours of travel

Setup time

84.000

Number of setups

Supervision

100.000

Direct labor cost

Estimated Use of Cost Drivers per Product

Commercial

Residential

Scheduling and travel

700

800

Setup time

350

250