Answer Happy

Sheffield 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 $351,000 $456,000 Direct materials costs $30,000 $50,000 Direct labor costs 140,000 260,000 Overhead costs 91,000 261,000 176,000 486,000 Operating income (loss) $90,000 $(30,000) 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 Scheduling and travel Setup time Supervision Estimated Overhead $91,000 96,000 80,000 Estimated Use of Cost Drivers per Product Commercial 750 550 Scheduling and travel Setup time Cost Drivers Hours of travel Number of setups Direct labor cost Residential 550 250
Compute the activity-based overhead rates for each of the three cost pools. (Round answers to 2 decimal places, e.g. 0.38.) Overhead Rates Scheduling and travel $ 70 per hour Setup time $ 120 per setup Supervision 2 per dollar LA
Determine the overhead cost assigned to each product line. Commercial Scheduling and travel 52500 Setup time 66000 Supervision 280000 Total cost assigned 398500 tA $ $ tA $ $ Residential 38500 30000 520000 588500
Compute the operating income for each product line, using the activity-based overhead rates. Operating income (loss) Commercial 217500 Residential 447500