Megan Company produces motorcycle parts. Information regarding its resources for the month of July follows: }

Resources Resources Used Supplied Parts management $ 3,000 $ 3,500 Energy » 5,000 5,000 Quality Inspections 4,500 5,000 Long-term labor ZOO 3,500 Short-term labor 2,000 2,400 Setups 9,000 11,000 Materials 15,000 15,000 Depreciation 6,000 10,000 Marketing 7,000 7,500 Customer service 1,000 2,000 Administrative services 5,000 7,000 In addition, Megan spent $4,000 on 10 engineering changes for products with a cost driver of $400 per change. She spent $3,000 on four outside contracts with a cost-driver rate of $750 per contract for outside short-term labor in addition to the short-term labor listed above under Resources Used and Resources Supplied. There was no unused capacity for these two activities. Sales for July were $100,000.

Required

a. Prepare an activity-based income statement (similar to Exhibit 5-6).

b. Write a short report explaining why the ABM income statement provides better information to managers than a traditional income statement. Use Megan Company information in your discussion