Seat (LO 9.1.5, 6) 9-55. Comparative Income Statements and Management Analysis May, Pepper's Products had the following costs and revenues. Pepper's Products manufactures and sells two types of chew toys for pets-Squeaky and Silent. In Total PEPPER'S PRODUCTS Income Statement For the Month of May Squeaky Silent $43.200 $48.000 4,000 4.000 9.600 14.400 $91,200 8.000 24.000 Sales revenue Direct materials Direct labor Overhead costs Administration Production setup Quality control Distribution. Operating profit. 6,000 12.000 6.000 4.800 $30,400 Pepper's 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 Cost Driver Activity Level Squeaky Silent Setting up Performing quality control Distribution 8 Number of production runs Number of inspections Number of units shipped 10 30 16,000 5 10 24,000 c. Required a. Complete the income statement using the preceding activity bases. b. Write a report indicating how management might use activity-based costing to reduce costs Restate the income statement for Pepper's Products using direct labor costs as the only over- head allocation base, d. Write a report to management stating why product line profits differ using activity-based cost- ing compared to the traditional approach. Indicate whether activity-based costing provides more accurate information and why if you believe it does provide more accurate informa- tion). Indicate in your report how the use of labor-based overhead allocation could cause management at Pepper's Products to make suboptimal decisions