GoGo Ltd. manufactures three models of children's swing sets: Standard, Deluxe, and Super. The Standard set is made of steel, the Deluxe set is made of aluminum, and the Super set is made of a titanium-aluminum alloy. Because of the different materials used, production requirements differ significantly across models in terms of machine types and time requirements. However, once the parts are produced, assembly time per set is similar for the three models. For this reason, GoGo has adopted the practice of allocating overhead costs on the basis of machine hours. Last year, the company produced 5,000 Standard sets, 500 Deluxe sets, and 2,000 Super sets. The company had the following revenues and expenses for the year:

The chief financial officer of GoGo has hired a consultant to recommend cost allocation bases. The consultant has recommended the following:

The consultant found no basis for allocating the plant administration and other fixed overhead costs, and recommended that they not be applied to products.
Instructions
(a) Complete the income statement using the bases recommended by the consultant. Do not allocate any fixed overhead costs.
(b) Explain how activity-based costing might result in better decisions by GoGo's management.

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GOGO LTD. Income Statement Year Ended December 31, 2012 Standard $475,000 Deluxe $380,000 Total Sales Direct costs: $560,000 $1,415,000 Direct materials Direct labour 200,000 54,000 150,000 14,000 240,000 24,000 590,000 92,000 Variable overhead costs: 25,000 60,000 90,000 35,000 523,000 ups Order processing Contribution margin Fixed overhead costs: Plant administration Other 88,000 182,000 $253,000 Gross profit Activity Level Activities Machine set-ups Sales order processing Warehouse costs Shipping Cost Drivers_ No. of production runs No. of sales orders received No. of units held in inventory No. of units shipped Standard Deluxe Super Total 50 300 800 100 400 500 2,000 7,500 17 300 200 5,000 200 100