EZ-Seat, Inc., manufactures two types of reclining chairs, Standard and Ergo. Ergo provides support for the body through a complex set of sensors and requires great care in manufacturing to avoid damage to the material and frame. Standard is a conventional recliner, uses standard materials, and is simpler to manufacture. EZ-Seats results for the last fiscal year are shown in the statement below.

EZ-SEAT, INC. Income Statement
	Ergo			Standard			Total
Sales revenue	$	2,000,000		$	5,000,000		$	7,000,000
Direct materials		600,000			1,500,000			2,100,000
Direct labor		400,000			500,000			900,000
Overhead costs
Administration								720,000
Production setup								450,000
Quality control								266,000
Distribution								711,000
Operating profit							$	1,853,000

EZ-Seat 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 bases to allocate the remaining costs:

		Activity Level
Activity Base	Cost Driver	Ergo	Standard
Setting up	Number of production runs	50	100
Performing quality control	Number of inspections	190	190
Distribution	Number of units shipped	1,500	6,400

Required:

a. Complete the income statement using the preceding activity bases. (Do not round intermediate calculations.)

Account Ergo Standard Total 5,000,000 $ 1,500,000 $ 2,100,000 Sales revenue 2,000,000 600,000 $ 7,000,000 Direct materials Direct labon 400,000 500,000 900,000 Overhead costs: Administration 720,000 Production setup 450,000 Quality control 266,000 Distribution 711,000 Total overhead costs Operating profit (loss) 2,147,000 1,000,000 S 3.000,000 $ S 1,853,000 c. Restate the income statement for EZ-Seat using direct labor costs as the only overhead allocation base. (Do not round intermediate calcu lations.) Account Ergo Standard Total Sales revenue 2,000,000 $ 5,000,000 7,000,000 S Direct materials 600,000 1,500,000 2,100,000 Direct labor 400,000 500,000 900,000 Overhead costs 0 Operating profit (loss) 3,000,000 $ 4,000,000 1,000,000 $