Chapter 4, Problem 4.14E

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.

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	$85,000			Hours of travel
Setup time	90,000			Number of setups
Supervision	60,000			Direct labor cost
Expected Use of Cost Drivers per Product
		Commercial	Residential
Scheduling and travel		750	500
Setup time		350	250

Instructions

(a) Compute the activity-based overhead rates for each of the three cost pools, and determine the overhead cost assigned to each product line.

(b) Compute the operating income for each product line, using the activity-based overhead rates.

(c) What do you believe Peggy Kingman should do?