Exercise 17-14 (Part Level Submission) Venus Creations sells window treatments (

Question

Exercise 17-14 (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

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

Commercial

Residential

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)

Explanation / Answer

Expected use Cost Drivers per product Commercial Residential Total Direct labor cost 113600                                    293,500           407,100 Scheduling and travel 970                                            500                1,470 Setup time 410                                            230                   640 Activity Cost Pools Estimated Overhead Activity Activity Rate Scheduling and travel $96,000                            1,470                65.31 Setup time 74,300                               640             116.09 Supervision 73,500                       407,100                  0.18 Commercial Expected use Cost Drivers per product Activity Rate Cost Assigned Direct labor cost 113600                                           0.18             20,510 Scheduling and travel 970                                        65.31             63,347 Setup time 410                                            116             47,598 Total           131,455 Residential Expected use Cost Drivers per product Activity Rate Cost Assigned Direct labor cost                      293,500                                           0.18             52,990 Scheduling and travel                              500                                        65.31             32,653 Setup time                              230                                            116             26,702 Total           112,345 Commercial Residential Revenues 297,900                                    484,000 Less Direct material cost 30100                                      49,500 Direct labor costs 113600                                    293,500 Overhead cost                      131,455                                    112,345 Operating income (loss)                        22,745                                      28,655

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