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 900 Route 66s, 2,200 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	$	7,200,000		$	10,600,000		$	9,500,000		$	27,300,000
Direct costs
Direct materials		3,200,000			5,200,000			4,300,000			12,700,000
Direct labor		293,000			477,000			1,100,000			1,870,000
Variable overhead
Machine setup											604,200
Order processing											1,120,000
Warehousing costs											1,856,500
Energy to run machines											858,600
Shipping											774,000
Contribution margin										$	7,516,700
Fixed overhead
Plant administration											1,720,000
Other fixed overhead											2,840,000
Gross profit										$	2,956,700

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	23		37		46
Processing orders	Number of sales orders received	400		500		500
Warehousing	Number of units held in inventory	180		200		410
Using energy	Machine-hours	11,000		18,000		25,000
Shipping	Number of units shipped	1,000		4,200		12,000

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. (Do not round intermediate calculations. Round "variable overhead" amounts to the nearest dollar.)

	Rout 66	Main Street	Alley Cat	Total
Sales revenue	7200000	10600000	9500000	27300000
Direct Material	3200000	5200000	4300000	12700000
Direct Labor	293000	477000	1100000	1870000
Variable OH
contribution margin
Fixed OH
plant Administration
Other fixed OH
Gross profit

(b)

Complete the income statement using the bases recommended by the consultant. (Do not round intermediate calculations. Round "variable overhead" amounts to the nearest dollar.)

	route 66	main street	back alley	total
sales revenue	7200000	10600000	9500000	27300000
Direct cost
direct material	3200000	5200000	4300000	12700000
direct labor	293000	477000	1100000	1870000
Variable OH
Machine setup
Order processing
Warehousing costs
Energy to run machine
Shipping
Contribution Margin
Fix OH
Plant Administratin
Other Fixed OH
Gross Profit

(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.
	The activity-based costing method provides a consolidated summary of the costs.