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 800 Route 66s, 2,100 Main Streets, and 5,200 Alley Cats and had the following revenues and expenses.

PICKLE MOTORCYCLES, INC. Income Statement
	Route 66			Main Street			Alley Cat			Total
Sales revenue	$	7,400,000		$	10,700,000		$	9,500,000		$	27,600,000
Direct costs
Direct materials		3,100,000			5,100,000			4,400,000			12,600,000
Direct labor		288,000			470,000			1,040,000			1,798,000
Variable overhead
Machine setup											577,500
Order processing											1,440,000
Warehousing costs											1,865,500
Energy to run machines											850,000
Shipping											735,000
Contribution margin										$	7,734,000
Fixed overhead
Plant administration											1,680,000
Other fixed overhead											2,760,000
Gross profit										$	3,294,000

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	25		35		45
Processing orders	Number of sales orders received	400		700		700
Warehousing	Number of units held in inventory	210		200		410
Using energy	Machine-hours	10,000		14,000		26,000
Shipping	Number of units shipped	800		3,900		10,000

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?