Exercise 4-14 a1-a2, b (Video) Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers

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				$319,300				$472,500
Direct materials costs		$45,000				$50,000
Direct labor costs		120,000				280,000
Overhead costs		79,300		244,300		167,500		497,500
Operating income (loss)				$75,000				$(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			$79,300			Hours of travel
Setup time			127,500			Number of setups
Supervision			40,000			Direct labor cost

 

Estimated Use of Cost Drivers per Product
		Commercial				Residential
Scheduling and travel			750				550
Setup time			500				250

 

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.)
 

Determine the overhead cost assigned to each product line.
 

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