Peppers Products manufactures and sells two types of chew toys for petsSqueaky and Silent. In May, Peppers Products had the following costs and revenues.

Pepper's Products Income Statement
For the Month of May
	Squeaky			Silent			Total
Sales revenue	$	135,000		$	165,000		$	300,000
Direct materials		18,000			22,000			40,000
Direct labor		70,000			30,000			100,000
Overhead costs
Administration								20,000
Production setup								56,000
Quality control								15,000
Distribution								22,000
Operating profit							$	47,000

Peppers Products currently uses labor costs to allocate all overhead but 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 overhead.

		Activity Level
Activity	Cost Driver	Squeaky	Silent
Setting up	Number of production runs	10	18
Performing quality control	Number of inspections	30	30
Distribution	Number of units shipped	90,000	130,000

Required:

a. Complete the income statement using the preceding activity bases.

c. Restate the income statement for Pepper's Products using direct labor costs as the only overhead allocation base.

• Required A
• Required C

Complete the income statement using the preceding activity bases. (Do not round intermediate calculations. Input all amounts as positive values.)

Account	Squeaky	Silent	Total
Sales revenue	$135,000	$165,000	$300,000
Direct materials	18,000	22,000	40,000
Direct labor	70,000	30,000	100,000
Overhead costs:
Administration
Setting up
Performing quality control
Distribution
Total overhead costs
Operating profit (loss)	$(	$

• Required C

Restate the income statement for Pepper's Products using direct labor costs as the only overhead allocation base. (Do not round intermediate calculations. Input all amounts as positive values.)

Account	Squeaky	Silent	Total
Sales revenue	$135,000	$165,000	$300,000
Direct materials	18,000	22,000	40,000
Direct labor	70,000	30,000	100,000
Overhead costs			0
Operating profit (loss)	$47,000	$113,000	$160,000