AE17-5 (a,b)

Shady Lady sells window coverings to both commercial and residential customers. The following
information relates to its budgeted operations for the current year.
Commercial
Residential
Revenues
$304,300
$480,400
Direct material costs
30,800
49,200
Direct labor costs
100,000
299,100
49,800
180,600
149,700
498,000
Overhead costs
$123,700
($17,600)
Operating income (loss)
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 to install 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. Below are the three activity cost pools and related information
she developed:
Activity Cost Pools
Estimated Overhead
Cost Drivers
Scheduling and travel
$86,900
Hours of travel
Setup time
74,700
Number of setups
Supervision
37,900
Direct labor cost
Expected Use of Cost Drivers per Product
Commercial
Residential
Scheduling and travel
1,120
560
Setup time
430
280

Your answer is correct.

Compute the activity-based overhead rates for each of the three cost pools, and determine the
overhead cost assigned to each product line. (Round overhead rates to 3 decimal places,
e.g. 12.250. Round overhead assigned to 0 decimal places, e.g. 12,500.)
Activity-based overhead rates
Scheduling and travel

51.726

Setup time

105.211

Supervision

.095

Scheduling and travel

57933

Setup time

45241

Supervision

9500

112174

Commercial Overhead assigned

Total

Residential Overhead assigned

Scheduling and travel

28967

Setup time

29459

Supervision

28415

86841

Total