Custom Lock installs window coverings for both commercial and residential cus- tomers. The following information relates to its budgeted operations for the current year. Commercial $300,000 Residential $480,000 Revenues Direct material costs Direct labor costs Overhead costs Operating income (loss) $30,000 100,000 85,000 70.000 300,000 162,000 215, 000 $85,000 532 000 (S 52,000) The controller, Jane Reasoner is concerned about the residential product line. She cannot understand why this line is not more pmfitable given that the installations of window cover ings are less complex to install for residential Ustomers. In addition, the residential client base resides in close proximity to the company offidd, so travel costs are not as expensive dn a per client visit for residential customers. As a result; she has decided to take a closer Jook at the overhead costs assigned to the two poduet lines to determine whether a more accu- rate product costing model can be đeveloped. Here are the three activity cost pools and related information she developed Activity Cost Pools Scheduling and truvel Setup time Supervision Cost Drivers Hours of travel Number of senups Dinect labor.costr Esdimated Overhead 2496000 79000 72000 Expected Use of Cost Drives per Product Commercial Residential Scheduling and trater Seiup time 200 400 1:00 Instructions (a) Compute the activity-based overneadiates tor each determine the overhead cnst assigncl ož3 odua line. (b) Compute the operating income for the sach pibduci line using the activity-based overhead rates. (c) What do you believe Jane Reasoner sbaud de the threc cost pools, and
Custom Lock installs window coverings for both commercial and residential cus- tomers. The following information relates to its budgeted operations for the current year. Commercial $300,000 Residential $480,000 Revenues Direct material costs Direct labor costs Overhead costs Operating income (loss) $30,000 100,000 85,000 70.000 300,000 162,000 215, 000 $85,000 532 000 (S 52,000) The controller, Jane Reasoner is concerned about the residential product line. She cannot understand why this line is not more pmfitable given that the installations of window cover ings are less complex to install for residential Ustomers. In addition, the residential client base resides in close proximity to the company offidd, so travel costs are not as expensive dn a per client visit for residential customers. As a result; she has decided to take a closer Jook at the overhead costs assigned to the two poduet lines to determine whether a more accu- rate product costing model can be đeveloped. Here are the three activity cost pools and related information she developed Activity Cost Pools Scheduling and truvel Setup time Supervision Cost Drivers Hours of travel Number of senups Dinect labor.costr Esdimated Overhead 2496000 79000 72000 Expected Use of Cost Drives per Product Commercial Residential Scheduling and trater Seiup time 200 400 1:00 Instructions (a) Compute the activity-based overneadiates tor each determine the overhead cnst assigncl ož3 odua line. (b) Compute the operating income for the sach pibduci line using the activity-based overhead rates. (c) What do you believe Jane Reasoner sbaud de the threc cost pools, and
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:managerial exercize 4- Word
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Custom Lock installs window coverings for both commercial and residential cus-
tomers. The following information relates to its budgeted operations for the current vear.
Commercial
Residential
$300,000
$480,000
Revenues
Direct material costs
Direct labor costs
Overhead costs
Operating income (loss)
$ 30,000
100,000
85 000
$ 70.000
300,000
162,000
215,000
$ 85,000
532 000
52.000)
The controller, Jane Reasoner, is concerned about the residential product line. She cannot
understand why this line is not more profitable given that the installations of window cover
ings are less complex to install for residentil customers. In addition, the residential client
base resides in close proximity to the company offce, 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 assignedHọ the two prodiet lines to determine whether
rate product costing model cunn be đeveloped Here are the thirce activity cost pools and
residen
more accu-
related information she developed
Estimated Oerhead
Activity Cost Pools.
Scheduling and truvel
Setup time
Supervision
$96,000
79.000
72.000
Cost Drivers
Hours of travel
Number of serups
Direct labor cost
Expected Use of Cost Drivers per Product
Resizlential
Commercial
Scheduling anet traet
Setup time
200
Instructions
(a) Compute the activity-based overheadirates tor each ef the three cast pools, and
determine the overhead costassignedto hoda line
(b) Compute the operating income for the cadi prbduci iline using the activity based
overhead rates.
(c) What do you believe Jane Reasoner shoudd do
ivity-based overhead rates
1009
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