Motor Scooter Go!! makes three types of motor scooters, MS7100, MS8100 and MS9100. In the past, it allocated overhead to products using machine-hours. Last year, the company produced 10,000 units of MS7100, 17,500 units of MS8100, and 10,000 units of MS9100 and had the following revenues and costs: The controller for Motor Scooter Go!! has heard about activity-based costing and puts together an employee team to recommend cost allocation bases. The employee team recommends the following:

Activity	Cost Driver	MS7100	MS8100	MS9100
Setting up machines	Production runs	10	20	20
Processing sales orders	Sales orders received	180	400	220
Warehousing	Units held in inventory	100	200	100
Operating Machines	Machine-hours	6,000	9,000	10,000
Shipping	Units Shipped	10,000	17,500	10,000

The employee team recommends that plant administration costs not be allocated to products. REQUIRED: 1. Using machine-hours to allocate overhead, complete the income statement for Motor Scooter Go!!. Do not allocate the plant administrative costs to products. Use the same format as the Income Statement given. 2. Complete the income statement using the activity-based costing method suggested by the employee team. Use the same format as the Income Statement given. 3. How might the activity-based costing result in better decisions by Motor Scooter Go!! management? 4. After hearing the consultants recommendations, the CFO decides to adopt activity-based costing but expresses concern about not allocating some of the overhead to the products (plant administration and other fixed overhead). In the CFOs view, products have to bear a fair share of all overhead or we wont be covering all of our costs. How would you respond to this comment?

INCOME STATEMENT:

	MS7100	MS8100	MS9100	Total
Sales	$9,000,000	$15,000,000	$13,500,000	$37,500,000
Direct Costs
Direct Materials	3,000,000	4,500,000	3,300,000	10,800,000
Direct Labor	600,000	900,000	1,800,000	3,300,000
Variable Overhead
Setting up machines				2,400,000
Processing sales orders				1,800,000
Warehousing				2,400,000
Operating machines				1,200,000
Shipping				900,000
Contribution Margin				$14,700,000
Plant/administration				6,000,000
Gross Profit				$8,700,000