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