Question
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
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 | $ | 145,000 | $ | 155,000 | $ | 300,000 | |||
Direct materials | 19,000 | 18,000 | 37,000 | ||||||
Direct labor | 70,000 | 30,000 | 100,000 | ||||||
Overhead costs | |||||||||
Administration | 20,000 | ||||||||
Production setup | 64,000 | ||||||||
Quality control | 15,000 | ||||||||
Distribution | 20,000 | ||||||||
Operating profit | $ | 44,000 | |||||||
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 | 22 |
Performing quality control | Number of inspections | 30 | 30 |
Distribution | Number of units shipped | 80,000 | 120,000 |
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 i amounts as positive values.) Squeaky $ 145,000 $ 19,000 70,000 Silent 155,000 $ 18,000 30,000 Total 300,000 37,000 100,000 Account Sales revenue Direct materials Direct labor Overhead costs: Administration Setting up Performing quality control Distribution Total overhead costs Operating profit (loss) 20,000 64,000 15,000 20,000 Restate the income statement for Pepper's Products using direct labor costs as the only overhead allocation base. round intermediate calculations. Input all amounts as positive values.) Account Sales revenue Direct materials Direct labor Overhead costs Operating profit (loss) Squeaky $ 145,000 $ 19,000 70,000 Silent 155,000 $ 18,000 30,000 Total 300,000 37,000 100,000Step by Step Solution
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