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E4-14
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