Commercial Residential Activity Cost Pools Estimated Overhead Cost Drivers Comme

Question

Commercial

Residential

Activity Cost Pools

Estimated Overhead

Cost Drivers

Commercial

Residential

(a1)

Overhead Rates

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 $297,900 $484,000 Direct materials costs $30,100 $49,500 Direct labor costs 113,600 293,500 Overhead costs 92,800 236,500 151,000 494,000 Operating income (loss) $61,400 $(10,000)
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 $96,000 Hours of travel Setup time 74,300 Number of setups Supervision 73,500 Direct labor cost Expected Use of Cost Drivers per Product

Commercial

Residential

Scheduling and travel 970 500 Setup time 410 230

(a1)

Compute the activity-based overhead rates for each of the three cost pools. (Round answers to 2 decimal places, e.g. 12.25.)

Overhead Rates

Scheduling and travel

________$

Setup time _________

$

Supervision _________%

Explanation / Answer

Solution:-

Please Rate or comment if you have any doubt regarding this solution.

B C=A/B Activity Cost Pools Estimated Overhead Cost Drivers Commercial Residential Total Overhead Rate Scheduling and travel 96,000 Hours of travel 970 500 1470 $65.31 Per Hour Setup time 74,300 Number of setups 410 230 640 116.09 Per Setup Supervision 73,500 Direct labor cost 113600 293500 407100 18.05% Per $ of labor cost

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