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:

Instructions
(a) Compute the activity-based overhead rates for each of the three cost pools, and deter- mine the overhead cost assigned to each product line.
(b) Compute the operating income for each product line, using the activity-based over- head rates.
(c) What do you believe Peggy Kingman should do?

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Commercial Residential Revenues $300,000 $480,000 Direct materials costs Direct labor costs Overhead costs 30,000 100,000 85,000 $50,000 300,000 150,000 215,000 85,000 500,000 ( 20,000) Operating income (loss) Activity Cost Pools Scheduling and travel Setup time Supervision Estimated Overhead $85,000 90,000 60,000 Cost Drivers Hours of travel Number of setups Direct labor cost Expected Use of Cost Drivers per Product Commercial 750 350 Residential Scheduling and travel Setup time 500 250