Pickle Motorcycles, Inc. (PMI), manufactures three motorcycle models: a cruising bike (Route 66), a street bike (Main Street), and a starter model (Alley Cat). Because of the different materials used, production processes for each model differ significantly in terms of machine types and time requirements. Once parts are produced, however, assembly time per unit required for each type of bike is similar. For this reason, PMI allocates overhead on the basis of machine-hours. Last year, the company shipped 1,000 Route 66s, 1,900 Main Streets, and 5,100 Alley Cats and had the following revenues and expenses.

PICKLE MOTORCYCLES, INC. Income Statement
	Route 66			Main Street			Alley Cat			Total
Sales revenue	$	7,200,000		$	11,200,000		$	9,900,000		$	28,300,000
Direct costs
Direct materials		2,700,000			5,200,000			4,000,000			11,900,000
Direct labor		293,000			486,000			1,090,000			1,869,000
Variable overhead
Machine setup											522,500
Order processing											1,440,000
Warehousing costs											1,876,250
Energy to run machines											720,000
Shipping											710,000
Contribution margin										$	9,262,250
Fixed overhead
Plant administration											1,690,000
Other fixed overhead											2,840,000
Gross profit										$	4,732,250

PMI's chief financial officer (CFO) hired a consultant to recommend cost allocation bases. The consultant recommended the following.

		Activity Level
Activity	Cost Driver	Route 66		Main Street		Alley Cat
Setting up machines	Number of production runs	20		30		45
Processing orders	Number of sales orders received	500		700		600
Warehousing	Number of units held in inventory	210		160		420
Using energy	Machine-hours	12,000		14,000		22,000
Shipping	Number of units shipped	1,200		4,000		9,000

The consultant found no basis for allocating the plant administration and other fixed overhead costs and recommended that these not be applied to products.

Required:

a. Using machine-hours to allocate production overhead, complete the income statement for Pickle Motorcycles. (See the "using energy" activity for machine-hours.) Do not attempt to allocate plant administration or other fixed overhead.

b. Complete the income statement using the bases recommended by the consultant.

c. How might activity-based costing result in better decisions by Pickle Motorcycles's management?

• Required A
• Required B
• Required C

Using machine-hours to allocate production overhead, complete the income statement for Pickle Motorcycles. (See the "using energy" activity for machine-hours.) Do not attempt to allocate plant administration or other fixed overhead. (Round your variable overhead rate to 2 decimal places and your final answers to the nearest whole dollar amount. Input all amounts as positive values.)

PICKLE MOTORCYCLES
Income Statement
	Route 66	Main Street	Alley Cat	Total
Sales revenue	$7,200,000	$11,200,000	$9,900,000	$28,300,000
Direct costs:
Direct material	2,700,000	5,200,000	4,000,000	11,900,000
Direct labor	293,000	486,000	1,090,000	1,869,000
Variable overhead
Contribution margin	$4,207,000	$5,514,000	$4,810,000	$14,531,000
Fixed overhead:
Plant administration				1,690,000
Other fixed overhead				2,840,000
Gross profit				$4,732,250

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

PICKLE MOTORCYCLES
Income Statement
	Route 66	Main Street	Back Alley	Total
Sales revenue	$7,200,000	$11,200,000	$9,900,000	$28,300,000
Direct costs:
Direct material	2,700,000	5,200,000	4,000,000	11,900,000
Direct labor	293,000	486,000	1,090,000	1,869,000
Variable overhead:
Machine setup				522,500
Order processing				1,440,000
Warehousing costs				1,876,250
Energy to run machines				720,000
Shipping				710,000
Contribution margin
Fixed overhead:
Plant administration				1,690,000
Other fixed overhead				2,840,000
Gross profit				$4,732,250

• Required C

How might activity-based costing result in better decisions by Pickle Motorcycles's management?

	The activity-based costing method provides a more detailed breakdown of the costs.radio button unchecked1 of 2 The activity-based costing method provides a consolidated summary of the costs.radio button unchecked2 of 2