Unsure of what to divide the 40,000 by..? Exercise 18-14 (Part Level Submission)

Question

Unsure of what to divide the 40,000 by..?

Exercise 18-14 (Part Level Submission) 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 Direct materials costs $45,000 Direct labor costs Overhead costs Operating income (loss) $319,300 $472,500 $50,000 280,000 120,000 79,300 244.300 167,500 497,500 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 Estimated Overhead Cost Drivers Activity Cost Pools Scheduling and travel Setup time Supervision $79,300 127,500 40,000 Hours of travel Number of setups Direct labor cost Expected Use of Cost Drivers per Product Commercial Residential 750 Scheduling and travel Setup time 550 250 (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 61 170

Explanation / Answer

Calculate activity variance rate :

Overhead rates Scheduling and travel (79300/1300) 61 Setup time (127500/750) 170 Supervision (40000/400000) 10%

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