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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

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?
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