How much expense related to “handling production run activity” was allocated to Blue pens on the...
- How much expense related to “handling production run activity” was allocated to Blue pens on the traditional income statement (Exhibit 1) versus the amount allocated on your ABC income statements? Explain what causes the difference
| Exhibit 1: Traditional Income Statement | |||||
| Blue | Black | Red | Purple | Total | |
| Sales | $ 75,000 | $ 60,000 | $ 13,950 | $ 1,650 | $ 150,600 |
| Material Costs | 25,000 | 20,000 | 4,680 | 550 | 50,230 |
| Direct Labor | 10,000 | 8,000 | 1,800 | 200 | 20,000 |
| Overhead @ 300% | 30,000 | 24,000 | 5,400 | 600 | 60,000 |
| Total Operating Income | $ 10,000 | $ 8,000 | $ 2,070 | $ 300 | $ 20,370 |
| Return on Sales | 13.6% | 13.3% | 14.8% | 18.2% | 13.5% |
| ABC Income Statement | |||||
| Blue | Black | Red | Purple | Total | |
| Sales | $75,000 | $60,000 | $13,950 | $1,650 | $150,600 |
| Material Costs | $25,000 | $20,000 | $4,680 | $550 | $50,230 |
| Direct Labor | $10,000 | $8,000 | $1,800 | $200 | $20,000 |
| Production Run | $7,333 | $7,333 | $5,573 | $1,760 | $22,000 |
| Setup | $4,259 | $1,065 | $4,855 | $1,022 | $11,200 |
| Parts Admin | $1,200 | $1,200 | $1,200 | $1,200 | $4,800 |
| Support | $7,000 | $5,600 | $1,260 | $140 | $14,000 |
| Direct Labor Fringe | $4,000 | $3,200 | $720 | $80 | $8,000 |
| Total Operating Costs | $58,792 | $46,398 | $20,088 | $4,952 | $130,230 |
| Total Operating Income | $16,208 | $13,602 | -$6,138 | -$3,302 | $20,370 |
| Return on Sales | 21.6% | 22.7% | -44.0% | -200.1% | 13.5% |
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