Problem 9-37 Comparative Income Statements and Management Analysis (LO 9-1, 5, 6)

EZ-Seat, Inc., manufactures two types of reclining chairs, Standard and Ergo. Ergo provides support for the body through a complex set of sensors and requires great care in manufacturing to avoid damage to the material and frame. Standard is a conventional recliner, uses standard materials, and is simpler to manufacture. EZ-Seat's results for the last fiscal year are shown in the statement on the following page.

EZ Seat INC.

Income Statement

	Ergo	Standard	Total
Sales Revenu	2925000	2760000	5685000
Direct Materials	550000	500000	1050000
Direct Labor	400000	200000	600000
Overhead costs:
Administration			468000
Production setup			1080000
Quality Control			720000
Distribution			1440000
Operating Profit			327000

EZ-Seat currently uses labor costs to allocate all overhead, but management 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 costs:

Activity Base	Cost Driver	Ergo	Standard
Setting up	# of production runs	50	100
Performing Quality Control	# of inspections	200	200
Distribution	# of units shipped	1500	6000

Complete the income statement using the preceding activity bases.

Account	Ergo	Standard	Total
Sales Revenue	2925000	2760000	5685000
Direct materials	5500000	500000	1050000
Direct Labor	400000	200000	600000
Overhead Costs:
Administration	?	?	468000
Production Setup	?	?	1080000
Quality Control	?	?	720000
Distribution	?	?	1440000
Total Overhead Costs
Operating Profit	1975000	2060000	327000

Restate the income statement for EZ-Seat using direct labor costs as the only overhead allocation base.(Do not round your intermediate calculations.)

Account	Ergo	Standard	Total
Sales Revenue	2925000	2760000	5685000
Direct Materials	550000	500000	1050000
Direct Labor	400000	200000	600000
Overhead Cost	?	?	?
Operating Profit	?	?	?