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Discuss a more accurate product costing model

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Reference no: EM131793797

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.

Commercial Residential
Revenues $304,600 $480,000
Direct materials costs $30,900 $51,000
Direct labor costs
 111,400 297,500
Overhead costs 93,800 236,100 151,000 499,500
Operating income (loss) $68,500 $(19,500)

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 $80,000 Hours of travel
Setup time
 114,800 Number of setups
Supervision 50,000 Direct labor cost

 

Expected Use of Cost Drivers per Product
Commercial
 Residential
Scheduling and travel 850 600
Setup time
 440

200

Reference no: EM131793797

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