Question

Tri-State Mill uses a special sander to finish lumber. Data on the sander and its usage follow.

	Cost Driver Rate			Cost Driver Volume
Resources used
Energy	$	0.70	per machine-hour	8,000	machine-hours
Repairs	$	17	per job	700	jobs
Resources supplied
Energy	$	8,700
Repairs	$	13,800

Sales revenue from finishing totaled $48,000.

Required:

a. Prepare a traditional income statement.

b. Prepare an activity-based income statement.

Answer 1

Answer-a)-

TRI-STATE MILL
TRADITIONAL INCOME STATEMENT
PARTICULARS	AMOUNT	AMOUNT
	$	$
Sales Revenue		48000
Less- Costs
Energy costs	8700
Repair costs	13800
Total costs		22500
Operating profit		25500

b)-

TRI-STATE MILL
ACTIVITY BASED INCOME STATEMENT	RESOURCES USED	UNUSED RESOURCES CAPACITY	RESOURCES SUPPLIED
PARTICULARS	AMOUNT	AMOUNT	AMOUNT	AMOUNT
	$	$	$	$
Sales Revenue				48000
Less- Costs
Volume Related
Energy costs	$0.70 per machine hour*8000 hours =5600	8700-5600= 3100	8700
Batch Related
Repair costs	$17 per job*700 jobs= 11900	13800-11900=1900	13800
Total costs	17500	5000	22500	22500
Operating profit				25500