Normandy Office Products (NOP) makes two types of office desks, Manager and Executive. The Executive model is adjustable using electric motors and is made with upgraded materials. The manufacturing process for the Executive model is more complex than that for the Manager model, requiring more frequent inspections and shorter production runs. The Manager model is a basic desk, using good, but easy to work with, materials, and is simpler to manufacture. NOPs results for the last fiscal year are shown in the following statement.

NORMANDY OFFICE PRODUCTS
Income Statement
	Manager	Executive	Total
Sales revenue	$ 960,000	$ 1,065,000	$ 2,025,000
Direct materials	170,000	180,000	350,000
Direct labor	120,000	150,000	270,000
Overhead costs
Administration			216,000
Machine setup			360,000
Inspection			240,000
Packing and shipping			480,000
Operating profit			$ 109,000

NOP 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	Cost Driver	Activity Level
		Manager	Executive
Machine setup	Number of production runs	200	100
Inspection	Number of inspections	200	400
Packing and shipping	Number of units shipped	12,000	3,000

Required:

a. Prepare the product line income statement using the proposed activity bases.

Account	Manager	Executive	Total
Sales revenue	$960,000	$1,065,000	$2,025,000
Direct materials	170,000	180,000	350,000
Direct labor	120,000	150,000	270,000
Overhead costs:
Administration	?	?	216,000
Machine setup	?	?	360,000
Inspection	?	?	240,000
Packing and shipping	?	?	480,000
Total overhead costs	?	?	0
Operating profit (loss)	$670,000	$735,000	$1,405,000

c. Restate the product line income statement for Normandy Office Products using direct labor costs as the only overhead allocation base.

Account	Manager	Executive	Total
Sales revenue	$960,000	$1,065,000	$2,025,000
Direct materials	170,000	180,000	350,000
Direct labor	120,000	150,000	270,000
Overhead costs	?	?	0
Operating profit (loss)	$670,000	$735,000	$1,405,000