Shady Lady sells window coverings to both commerical and residential customers. She is concerned about the residential line and why it is not as profitable as the commerical line. She is looking for a more accurate product costing model to develop. Budgeted operations for the year are:
Revenue = $300,000
Direct Material Costs = 30,000
Direct Labour Costs = 100,000
Overhead costs = 50,000
Income = 120, 000
Revenue = $480,000
DM Costs = 50,000
DL costs = 300,000
Overhead costs = 150,000
Income (loss) = (20,000)
She develops 3 activity cost pools with the related information:
Cost Pools are:
Scheduling and Travel (hours of travel): Estimated Overhead = 90,000
Set-up time (# of setups): Est. OH = 70,000
Supervision (Direct labour cost): Est. OH = 40,000
(cost drivers in brackets)
Expected use of cost drivers:
Scheduling and travel: commercial = 1000, residential = 500
set-ep time: commercial = 450, residential = 250
A) Compute the activity based OH rates for each cost pool and determine the OH cost assigned to each product line.
B) Compute the operating income for each product line using the ABC OH rates
C) What should she do?
For A), my OH rates for each cost pool are $60 (sched. and travel) and $100 (set-up time). OH costs assigned to each line are $105,000 for commercial and $55,000 for residential.
Im looking for some verification on answers that I have, mainly for question B). My income for commercial is $125,000 and for residential is $335,000. I was wondering if anyone could verify if thats right, and if not explain to me how to get it. Thanks.