In: Accounting
Marigold 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 |
(a1)
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 |
$ |
per hour | |
Setup time |
$ |
per setup | |
Supervision |
$ |
per dollar |
Find The total overhead cost assigned to commercial and Residential
Find The operating income for commercial and residential
(a1)
Overhead Rates | ||
Scheduling and travel | $ 80 | per hour |
Setup time | $ 170 | per setup |
Supervision | $ 0.20 | per dollar |
Working:
Scheduling and travel: $108000/(800 + 550) = $108000/1350 = $80 |
Setup time: $119000/(450 + 250) = $119000/700 = $170 |
Supervision: $80000/($110000 + $290000) = $80000/$400000 = $0.20 |
Activity Cost Pool | Activity Rate | Commercial | Residential | ||
Cost Driver Usage | Overhead Cost Assigned | Cost Driver Usage | Overhead Cost Assigned | ||
Scheduling and travel | 80 | 800 | 64000 | 550 | 44000 |
Setup time | 170 | 450 | 76500 | 250 | 42500 |
Supervision | 0.20 | 110000 | 22000 | 290000 | 58000 |
Total overhead cost assigned $ | 162500 | 144500 |
Commercial | Residential | |||
Revenues | 328000 | 514000 | ||
Direct materials costs | 45000 | 50000 | ||
Direct labor costs | 110000 | 290000 | ||
Overhead costs | 162500 | 317500 | 144500 | 484500 |
Operating income (loss) | 10500 | 29500 |