Comparative income statements and management analysis. Fleetfoot, Inc.. manufactures two types of shoes: Marathon and B-Ball. Last year, Fleetfoot had the following costs and revenues:

Fleetfoot, Inc., currently uses labor costs to allocate all overhead, but management is considering implementing an activity-based costing system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct labor costs, but to use the following cost drivers to allocate the remaining overhead:

a. Complete the income statement using the cost drivers above.

b. Write a report indicating how management might use activity-based costing to reduce costs.

c. Restate the income statement for Fleetfoot using direct labor costs as the only overhead allocation base.

d. Write a report to management stating why product-line profits differ using activitybased costing compared to the traditional approach. Indicate whether activitybased costing provides more accurate information and. if so, how. Indicate in your report how the use of labor-based overhead allocation could result in Fleetfoot management making suboptimal decisions.

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FLEETFOOT, INC. Income Statement B-Ball Marathon Total Revenue $720,000 $800,000 $1,520,000 Direct Materials 100,000 100,000 200,000 Direct Labor 360,000 240,000 600.000 Indirect Costs: Administration Production Setup Quality Control Sales and Marketing Operating Profit 100,000 160.000 150,000 60,000 $250,000