Expense Category Expense

Indirect Labor $$20,000$

Fringe Benefits $16,000$

Computer Systems $10,000$

Machinery $8,000$

Maintenance $4,000$

Energy $2,000$

Total $$60,000$

Exhibit $1$ Traditional Income Statement

Blue Black Red Purple Total

Sales $$75,000$ $$60,000$ $$13,950$ $$1,650$ $$150,600$

Material Costs $25,00020,0004,68055050,230$

Direct Labor $10,0008,0001,80020020,000$

Overhead @$300\%30,00024,0005,40060060,000$

Total Operating $$10,000$ $$8,000$ $$2,070$ $$300$ $$20,370$

Income

Return on Sales $13\mathrm{.}6\%13\mathrm{.}3\%14\mathrm{.}8\%18\mathrm{.}2\%13\mathrm{.}5\%$

Exhibit $2$ Direct Costs and Activity Cost Drivers

Blue Black Red Purple Total

Production Sales Volume $50,00040,0009,0001,000100,000$

Unit Selling Price $$1\mathrm{.}50$ $$1\mathrm{.}50$ $$1\mathrm{.}55$ $$1\mathrm{.}65$

Materials$-$unit cost $$0\mathrm{.}50$ $$0\mathrm{.}50$ $$0\mathrm{.}52$ $$0\mathrm{.}55$

Direct labor hrs$/$unit $0\mathrm{.}020\mathrm{.}020\mathrm{.}020\mathrm{.}022,000$

Machine hours$/$unit $0\mathrm{.}10\mathrm{.}10\mathrm{.}10\mathrm{.}110,000$

Production runs $50503812150$

Setup time$/$run $4164$

Total setup time $($hours$)2005022848526$

Parts administration $11114$

$1.$ Based on the activity information collected by Dempsey determine the Overhead applied to each product under ABC cost model by

a$.$ Identifying the activities under the ABC model presented

b$.$ Determining the total cost per activity under the ABC model presented

c$.$ Determine the cost$-$driver for each activity

d$.$ Determine the $ rate per cost driver unit identified in $($c$)$

e$.$ Calculate the overhead for each of the four products

$2.$ Prepare a new income statement based on ABC overhead costs for each of the four products.

$3.$ Provide a recommendation to improve profitability.