Question

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
Revenues $328,000 $514,000
Direct materials costs $45,000 $50,000
Direct labor costs 110,000 290,000
Overhead costs 108,000 263,000 199,000 539,000
Operating income (loss) $65,000 $(25,000)
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 Estimated Overhead Cost Drivers
Scheduling and travel $108,000 Hours of travel
Setup time 119,000 Number of setups
Supervision 80,000 Direct labor cost
Estimated Use of Cost Drivers per Product
Commercial Residential
Scheduling and travel 800 550
Setup time 450 250
Compute the activity-based overhead rates for each of the three cost pools. (Round overhead rate for supervision to 2 decimal places, e.g. 0.38.)
Overhead Rates
Scheduling and travel
$enter a dollar amount per dollar rounded to 2 decimal places
per hour
Setup time
$enter a dollar amount per setup rounded to 2 decimal places
per setup
Supervision
$enter a dollar amount per dollar rounded to 2 decimal places

Answer 1

Scheduling and travel= $80 per hour

Setup time= $170 per set up

Supervision= $0.2 per direct labor dollar

Step-by-step explanation:

To calculate the predetermined manufacturing overhead rate we need to use the following formula:

Predetermined manufacturing overhead rate= total estimated overhead costs for the period/ total amount of allocation base

Commercial Residential

Scheduling and travel 800 550= 1,350

Setup time 450 250=700

Direct labor costs 110,000 290,000= $400,000

Scheduling and travel= 108,000 / 1,350= $80 per hour

Setup time= 119,000 / 700= $170 per set up

Supervision= 80,000 / 400,000= $0.2 per direct labor dollar