1. How much expense related to handling production run activity was allocated to Blue pens on the traditional income statement (Exhibit 1) versus the amount allocated on your ABC income statements? Explain what causes the difference

Exhibit 1: Traditional Income Statement
							Blue	Black	Red	Purple	Total
Sales	$ 75,000	$ 60,000	$ 13,950	$ 1,650	$ 150,600
Material Costs	25,000	20,000	4,680	550	50,230
Direct Labor	10,000	8,000	1,800	200	20,000
Overhead @ 300%	30,000	24,000	5,400	600	60,000
Total Operating Income	$ 10,000	$ 8,000	$ 2,070	$ 300	$ 20,370
Return on Sales	13.6%	13.3%	14.8%	18.2%	13.5%

ABC Income Statement
	Blue	Black	Red	Purple	Total
Sales	$75,000	$60,000	$13,950	$1,650	$150,600
Material Costs	$25,000	$20,000	$4,680	$550	$50,230
Direct Labor	$10,000	$8,000	$1,800	$200	$20,000
Production Run	$7,333	$7,333	$5,573	$1,760	$22,000
Setup	$4,259	$1,065	$4,855	$1,022	$11,200
Parts Admin	$1,200	$1,200	$1,200	$1,200	$4,800
Support	$7,000	$5,600	$1,260	$140	$14,000
Direct Labor Fringe	$4,000	$3,200	$720	$80	$8,000
Total Operating Costs	$58,792	$46,398	$20,088	$4,952	$130,230
Total Operating Income	$16,208	$13,602	-$6,138	-$3,302	$20,370
Return on Sales	21.6%	22.7%	-44.0%	-200.1%	13.5%