If Gordon Company had used activities-based costing (ABC) for allocating overhead to its products, it could have easily identified four activities in the plant.

Budgeted overhead for the four activities appears below.

Activity Allocation Base Budgeted Overhead Budgeted Use for each activity

Set-up direct labor hours $157,500 10,500 direct labor hours

Forming machine-hours $187,500 75,000 machine-hours

Machine maintenance batches $84,000 140 batches

Inspection units produced $21,000 70,000 units

Total manufacturing overhead $450,000

Job cost records at the end of the year show that direct labor personnel worked 9,000 hours.150 batches were produced during the year for a total of 75,000 units.

Would operating income increase or decrease (given the same facts in transactions 1 through 11 above) if Gordon used activities-based costing for allocating overhead?By how much?

What conclusions might Gordon Company's management accountants draw once they compared the original income statement with the ABC-based income statement?