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 below.
ez-seat, inc.
income statement
ergo standard total
sales revenue $ 20,00,000 $ 50,00,000 $ 70,00,000
direct materials 6,00,000 15,00,000 21,00,000
direct labor 4,00,000 5,00,000 9,00,000
overhead costs
administration 6,30,000
production setup 4,80,000
quality control 2,85,000
distribution 7,60,000
operating profit $ 18,45,000
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 level
activity base cost driver ergo standard
setting up number of production runs 60 100
performing quality control number of inspections 190 190
distribution number of units shipped 1,500 6,100
required:
a. complete the income statement using the preceding activity bases. (do not round intermediate calculations.)
b)restate the income statement for ez-seat using direct labor costs as the only overhead allocation base. (do not round intermediate calculations.)