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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.

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