Thatcher Supply manufactures and sells two types of pet doors$$Standard and Hi$-$Tech. The Standard model is a basic opening installed in a door. The Hi$-$Tech model is automated and includes several safety features using electronics. The Hi$-$Tech model requires shorter production runs and more frequent inspection to ensure quality standards are met. In August, Thatcher Supply had the following financial results:

THATCHER SUPPLY

Income Statement

For the Month of August

Standard Hi$-$Tech Total

Sales revenue $ $262,500$ $ $168,500$ $ $431,000$

Direct materials $51,72034,50086,220$

Direct labor $95,00038,000133,000$

Overhead costs

Administration $51,720$

Machine setup $54,600$

Quality assurance $20,680$

Machine maintenance $48,000$

Operating profit $ $36,780$

Other selected information for units produced in August follow:

Standard Hi$-$Tech

Units produced $2,500500$

Direct labor$-$hours per unit $24$

Machine$-$hours per unit $82$

Thatcher Supply currently uses direct labor$-$hours to allocate all overhead to the two models but is considering implementing an activity$-$based costing system. After interviewing the sales and production staff, the financial staff suggests they allocate administrative costs on the basis of revenue. They would use the following cost drivers to allocate the remaining three pools of overhead costs:

Activity Cost Driver Activity Level

Standard Hi$-$Tech

Machine setup Number of production runs $1025$

Quality assurance Number of inspections $1010$

Machine maintenance Number of machine$-$hours $2,0001,000$

Required:

Complete the product$-$line income statement using the current system using direct labor$-$hours to allocate overhead costs.

Complete the product$-$line income statement using the proposed ABC system to allocate overhead costs.