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Oriole Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers. The follow Revenues Direct materials costs Direct labor costs Overhead costs Operating income (loss) Commercial $357,500 $30,000 140,000 97,500 267,500 $90,000 Residential $460,500 $50,000 260,000 170,500 480,500 $(20,000)

Oriole Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers. The follow Revenues Direct materials costs Direct labor costs Overhead costs Operating income (loss) Commercial $357,500 $30,000 140,000 97,500 267,500 $90,000 Residential $460,500 $50,000 260,000 170,500 480,500 $(20,000)

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Activity-Based Costing: Overhead Rates Calculation** --- ### Overview This educational exercise is designed to teach the calculation of activity-based overhead rates and their allocation to product lines. Follow the steps below to compute the overhead rates and determine the overhead cost assigned to each product line. ### Step 1: Compute the Activity-Based Overhead Rates Compute the activity-based overhead rates for each of the three cost pools. **Note:** Round the overhead rate for supervision to 2 decimal places (e.g., 0.38). #### Overhead Rates | Cost Pool | Overhead Rate | Unit | |------------------------|------------------------|-------------| | Scheduling and Travel | $65 | per hour | | Setup Time | $170 | per setup | | Supervision | $0.15 | per dollar | --- ### Step 2: Determine the Overhead Cost Assigned to Each Product Line Using the overhead rates calculated in Step 1, determine the overhead cost assigned to the Commercial and Residential product lines respectively. #### Overhead Cost Assignment | | Commercial | Residential | |-----------------------|------------|-------------| | Scheduling and Travel | $ | $ | | Setup Time | $ | $ | | Supervision | $ | $ | | **Total Cost Assigned** | **$** | **$** | 1. **Scheduling and Travel Costs:** Calculate based on the number of hours required for scheduling and travel for each product line and multiply by $65 per hour. 2. **Setup Time Costs:** Calculate based on the number of setups required for each product line and multiply by $170 per setup. 3. **Supervision Costs:** Calculate based on the total dollar value of the product line and multiply by $0.15 per dollar. --- By following these instructions, you will be able to allocate the overhead costs accurately to each product line, allowing for better cost management and pricing strategies.
Transcribed Image Text:**Activity-Based Costing: Overhead Rates Calculation** --- ### Overview This educational exercise is designed to teach the calculation of activity-based overhead rates and their allocation to product lines. Follow the steps below to compute the overhead rates and determine the overhead cost assigned to each product line. ### Step 1: Compute the Activity-Based Overhead Rates Compute the activity-based overhead rates for each of the three cost pools. **Note:** Round the overhead rate for supervision to 2 decimal places (e.g., 0.38). #### Overhead Rates | Cost Pool | Overhead Rate | Unit | |------------------------|------------------------|-------------| | Scheduling and Travel | $65 | per hour | | Setup Time | $170 | per setup | | Supervision | $0.15 | per dollar | --- ### Step 2: Determine the Overhead Cost Assigned to Each Product Line Using the overhead rates calculated in Step 1, determine the overhead cost assigned to the Commercial and Residential product lines respectively. #### Overhead Cost Assignment | | Commercial | Residential | |-----------------------|------------|-------------| | Scheduling and Travel | $ | $ | | Setup Time | $ | $ | | Supervision | $ | $ | | **Total Cost Assigned** | **$** | **$** | 1. **Scheduling and Travel Costs:** Calculate based on the number of hours required for scheduling and travel for each product line and multiply by $65 per hour. 2. **Setup Time Costs:** Calculate based on the number of setups required for each product line and multiply by $170 per setup. 3. **Supervision Costs:** Calculate based on the total dollar value of the product line and multiply by $0.15 per dollar. --- By following these instructions, you will be able to allocate the overhead costs accurately to each product line, allowing for better cost management and pricing strategies.
**Oriole Creations Operations Analysis** Oriole 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. ### Financial and Operational Data - **Commercial Line:** - Revenues: $357,500 - Direct materials costs: $30,000 - Direct labor costs: $140,000 - Overhead costs: $97,500 - Operating income: $90,000 - **Residential Line:** - Revenues: $460,500 - Direct materials costs: $50,000 - Direct labor costs: $260,000 - Overhead costs: $170,500 - Operating loss: ($20,000) ### Concerns and Analysis The controller, Peggy Kingman, is concerned about the residential product line, which is not profitable despite the less complex installations for residential customers. The residential client base is also in close proximity to the company office, making travel costs less significant. Peggy is investigating overhead costs assigned to the two product lines to develop a more accurate product costing model. ### Activity Cost Pools and Cost Drivers Three activity cost pools and their related details have been identified: | Activity Cost Pools | Estimated Overhead | Cost Drivers | |---------------------|--------------------|-----------------------| | Scheduling and travel| $97,500 | Hours of travel | | Setup time | $110,500 | Number of setups | | Supervision | $60,000 | Direct labor cost | ### Estimated Use of Cost Drivers per Product Usage of cost drivers for commercial and residential products is as follows: | Cost Driver | Commercial | Residential | |---------------------|------------|-------------| | Scheduling and travel| 800 | 700 | | Setup time | 400 | 250 | This detailed breakdown aims to identify any discrepancies in overhead allocation and evaluate potential inefficiencies within the residential product line to improve profitability.
Transcribed Image Text:**Oriole Creations Operations Analysis** Oriole 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. ### Financial and Operational Data - **Commercial Line:** - Revenues: $357,500 - Direct materials costs: $30,000 - Direct labor costs: $140,000 - Overhead costs: $97,500 - Operating income: $90,000 - **Residential Line:** - Revenues: $460,500 - Direct materials costs: $50,000 - Direct labor costs: $260,000 - Overhead costs: $170,500 - Operating loss: ($20,000) ### Concerns and Analysis The controller, Peggy Kingman, is concerned about the residential product line, which is not profitable despite the less complex installations for residential customers. The residential client base is also in close proximity to the company office, making travel costs less significant. Peggy is investigating overhead costs assigned to the two product lines to develop a more accurate product costing model. ### Activity Cost Pools and Cost Drivers Three activity cost pools and their related details have been identified: | Activity Cost Pools | Estimated Overhead | Cost Drivers | |---------------------|--------------------|-----------------------| | Scheduling and travel| $97,500 | Hours of travel | | Setup time | $110,500 | Number of setups | | Supervision | $60,000 | Direct labor cost | ### Estimated Use of Cost Drivers per Product Usage of cost drivers for commercial and residential products is as follows: | Cost Driver | Commercial | Residential | |---------------------|------------|-------------| | Scheduling and travel| 800 | 700 | | Setup time | 400 | 250 | This detailed breakdown aims to identify any discrepancies in overhead allocation and evaluate potential inefficiencies within the residential product line to improve profitability.
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