Question

Problem 10-64 (Algo) Activity-Based Reporting: Manufacturing (LO 10-4, 5)

Leidenheimer Corporation manufactures small airplane propellers. Sales for year 2 totaled $1,650,000. Information regarding resources for the month follows.
     

	Resources Used				Resources Supplied
Parts management	$	59,000			$	75,000
Energy		101,000				101,000
Quality inspections		93,000				103,000
Long-term labor		46,000				71,000
Short-term labor		37,000				52,000
Setups		144,000				220,000
Materials		320,000				320,000
Depreciation		110,000				220,000
Marketing		145,000				170,000
Customer service		25,000				44,000
Administrative		119,000				132,000

In addition, Leidenheimer spent $58,500 on 45 engineering changes with a cost-driver rate of $1,300 and $61,600 on 8 outside contracts with a cost driver rate of $7,700.

Required:   

Management has requested that you do the following:

a. Prepare a traditional income statement.

b. Prepare an activity-based income statement

Answer 1

TRADITIONAL INCOME STATEMENT  

PARTICULARS	AMOUNT
SALES	16,50,000
LESS:PARTS MANAGEMENT	(75,000)
LESS:ENERGY	(1,01,000)
LESS:QUALITY INSPECTION	(1,03,000)
LESS:LONG TERM LABOR	(71,000)
LESS:SHORT TERM LABOR	(52,000)
LESS:SETUPS	(2,20,000)
LESS:MATERIAL	(3,20,000)
LESS:DEPRECIATION	(2,20,000)
LESS:MARKETING	(1,70,000)
LESS:CUSTOMER SERVICES	(44,000)
LESS:ADMINISTRATIVE	(1,32,000)
LESS:ENGINEERING CHARGES	(58,500)
LESS:OUTSIDE CONTRACT	(61,600)
OPERATING PROFIT	21,900

ACTIVITY BASED INCOME STATEMENT

PARTICULARS	RESOURCES USED	UNUSED CAPACITY	RESOURCES SUPPLIED
SALES	-	-	-
COST	-	-	-
LESS:PARTS MANAGEMENT	59,000	16,000	75,000
LESS:ENERGY	1,01,000	-	1,01,000
LESS:SHORT-TERM LABOR	37,000	15,000	52,000
LESS:MATERIAL	3,20,000	-	3,20,000
LESS:OUTSIDE CONTRACT	61,600	-	61,600
TOTAL	5,78,600	31,000	6,09,600
BATCH	-	-	-
LESS :QUALITY INSPECTION	93,000	10,000	1,03,000
LESS:SETUPS	1,44,000	76,000	2,20,000
TOTAL	2,37,000	86,000	3,23,000
PRODUCT AND CUSTOMER SUSTAINING	-	-	-
LESS:MARKETING	1,45,000	25,000	1,70,000
LESS:CUSTOMER SERVICES	25,000	19,000	44,000
LESS:ENGINEERING CHARGES	58,500	-	58,500
TOTAL	2,28,500	44,000	2,72,500
CAPACITY SUSTAIN	-	-	-
LESS:SHORT-TERM LABOR	46,000	25,000	71,000
DEPRECIATION	1,10,000	1,10,000	2,20,000
TOTAL	1,56,000	1,35,000	2,91,000
TOTAL COST	1200100	296000	1496100
OPERATING PROFIT	-	-	-

The best income statement is provided by the activity based income statement because it provides accurate information about the cost to the organization.