9-39 Choosing an activity-based costing system Pickle motorcycles, inc. (PMI), manufatuers three motorcycle models: a cruising bike (Route 66), a street bike (Main Street), and a starter model (Alley Cat). Because of the different materials used, production process for each model differs significantly in terms of machine types and time requirements. Once parts are processed, however, assembly per unit required for each type of bike is similar. For this reason, PMI allocates overhead on the basis of machine-hours. Last year, the company shipped 1,000 Route 66s, 4,000 Main Streets, and 10,000 Alley Cats and had the following revenues and expenses. Pickle Motorcycles, Inc. Income Statement Route 66 Main Street Alley Cat Total Sales . $7,600,000 $11,200,000 $9,500,000 $28,300,000 Direct Cost Direct materials..$3,000,000 $4,800,000 $4,000,000 $11,800,000 Direct Labor..$288,000 $480,000 $1,080,000 $1,848,000 Variable Overhead Machine setup $468,000 Order processing $1,152,000 Warehouse cost. $1,674,000 Energy to run machines $756,000 Shipping. $648,000 Contribution margin.. $9,954,000 Fixed overhead Plant administration.. $1,760,000 Other fixed overhead $2,800,000 Gross profit.. $5,394,000 PMIs chief financial officer (CFO) hired a consultant to recommend cost allocation bases. The consultant recommended the following: Activity Level Activity cost driver Route 66 Main Street Alley Cat Setting up machines number of production runs 22 34 44 Processing orders...number of sales orders received 400 600 600 Warehousing.number of units held in inventory 200 200 400 Using energymachine hours 10,000 16,000 24,000 Shippingnumber of units shipped 1,000 4,000 10,000 The consultant found no basis for allocating the plant administration and other fixed overhead cost and recommended that these not be applied to products. Required: b. Complete the income statement using the bases recommended by the consultant