EXHIBIT 1 Traditional Income Statement BLUE BLACK RED PURPLE TOTAL Sales $80,000 $64,000 $13,200 $3,500 $160,700 Material cost 27,500 22,000 4,560 1200 55,260 Direct labour 6,250 5,000 1,000 250 12,500 Overhead @ 520% 32,500 26,000 5,200 1,300 65,000 Total operating income $13,750 $11,000 $2,440 $750 $27,940 Return on sales 17.19% 17.19% 18.49% 21.43% 17.39% Exhibit 2 Direct Costs and Activity Cost Drivers BLUE BLACK RED PURPLE TOTAL Production sales volume (no. of units) 50,000 40,000 8,000 2,000 1,00,000 Unit selling price $1.60 $1.60 $1.65 $1.75 Materials/ unit cost $0.55 $0.55 $0.57 $0.60 Direct labor hr/unit 0.02 0.02 0.02 0.02 2,000 Machine hour/ unit 0.1 0.1 0.1 0.1 10,000 No. of production runs 50 50 38 12 150 Setup time/ run (hours) 4 1 6 4 Total set up time (hours) 200 50 228 48 526 Number of products 1 1 1 1 4 EXPENSE CATEGORY EXPENSE Indirect labour $25,000 Fringe Benefits 15,000 Computer systems 10,000 Machinery 9,000 Maintenance 3,000 Energy 3,000 Total $65,000

How do you find the costs of each pen under ABC system?