E4-5 Shady Lady sells window coverings to both commercial and residential custo

E4-5
Shady Lady sells window coverings to both commercial and residential
customers. The following information relates to its budgeted operations
for the current year. Commercial ResidentialRevenues $300000 $480000 Direct material costs 30000 50000 Direct labor costs 100000 300000 Overhead costs 50000 180000 150000 500000 Operating income (loss) $120000 ($ 20000) The
controller Wanda Lewis 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. Here are the three activity cost
pools and related information she developed: Activity Cost Pools Estimated Overhead Cost Drivers Scheduling and travel $90000 Hours of travel Setup time 70000 Number of setups Supervision 40000 Direct labor cost Expected Use of Cost Drivers per Product Commercial Residential Scheduling and travel 1000 500 Setup time 450 250 Instructions:a)
Compute the activity-based overhead rates for each of the three cost
pools and determine the overhead cost assigned to each product lineb) Compute the operating income for the each product line using the activity-based overhead ratesc) What do you believe Wanda Lewis should do?