Exercise 4-1 (part level submission) wilkins inc. has two types

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Exercise 4-5 (Part Level Submission)

 

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Shady Lady sells window coverings (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

     

$298,600

     

$477,500

 

Direct material costs

 

$29,000

     

$50,500

     

Direct labor costs

 

114,000

     

298,000

     

Overhead costs

 

81,800

 

224,800

 

149,200

 

497,700

 

Operating income (loss)

     

$73,800

     

($20,200

)


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

 

$106,800

 

Hours of travel

Setup time

 

74,760

 

Number of setups

Supervision

 

49,440

 

Direct labor cost

 

Expected Use of Cost Drivers per Product

   

Commercial

 

Residential

Scheduling and travel

 

1,070

 

535

Setup time

 

420

 

300

 

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(a)

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Compute the activity-based overhead rates for each of the three cost pools. (Round the supervision overhead rate to 2 decimal places, e.g. 12% and all other answers to 2 decimal places, e.g. $12.25.)

   

Overhead Rate

 

Scheduling and travel

 

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Setup time

 

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Supervision

 

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%

 

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(b)

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Determine the overhead cost assigned to each product line. (Round Overhead Rate to 2 decimal places, 15.25 and final answers to 0 decimal places, e.g. $2,512.)

   

Commercial

 

Residential

Scheduling and travel

 

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Setup time

 

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Supervision

 

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Total assigned costs

 

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(c)

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Compute the operating income for each product line, using the activity-based overhead rates. (Round answers to 0 decimal places, e.g. $2,512.)

   

Commercial

 

Residential

Operating income

 

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