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Exhibit 1 Traditional Income Statement Blue Black Red Total Sales Purple $1,650 550 Material Costs Direct Labor $75,000 25,000 10,000 30,000 $10,000 $60,000 20,000 8,000 24,000 $8,000 $13,950 4,680 1,800 5,400 $2,070 200 $150,600 50,230 20,000 60,000 $20,370 Overhead @300% Total Operating Income 600 $300 Return on Sales 13.6% 13.3% 14.8% 18.2% 13.5% Exhibit 2 Direct Costs and Activity Cost Drivers Blue Red Total Purple 1,000 Production Sales Volume 50,000 40,000 9,000 100,000 $1.50 $1.55 $1.50 $0.50 0.02 $1.65 $0.55 $0.50 $0.52 0.02 0.02 0.02 2,000 0.1 0.1 0.1 0.1 10,000 Unit Selling Price Materials-unit cost Direct labor hrs/unit Machine hours/ unit Production runs Setup time/run Total setup time (hours) Parts administration 50 50 38 12 150 4 1 6 4 200 50 228 48 526 1 1 1 1 4 Calculation Questions (Activity-Based Costing): 1. Determine the overhead allocation rate for each cost driver. 2. Calculate the revised product costs for the four pens based on ABC using activity information collected by Dempsey. 3. Which pens are profitable and which are not profitable based on your ABC analysis? Exhibit 1 Traditional Income Statement Blue Black Red Total Sales Purple $1,650 550 Material Costs Direct Labor $75,000 25,000 10,000 30,000 $10,000 $60,000 20,000 8,000 24,000 $8,000 $13,950 4,680 1,800 5,400 $2,070 200 $150,600 50,230 20,000 60,000 $20,370 Overhead @300% Total Operating Income 600 $300 Return on Sales 13.6% 13.3% 14.8% 18.2% 13.5% Exhibit 2 Direct Costs and Activity Cost Drivers Blue Red Total Purple 1,000 Production Sales Volume 50,000 40,000 9,000 100,000 $1.50 $1.55 $1.50 $0.50 0.02 $1.65 $0.55 $0.50 $0.52 0.02 0.02 0.02 2,000 0.1 0.1 0.1 0.1 10,000 Unit Selling Price Materials-unit cost Direct labor hrs/unit Machine hours/ unit Production runs Setup time/run Total setup time (hours) Parts administration 50 50 38 12 150 4 1 6 4 200 50 228 48 526 1 1 1 1 4 Calculation Questions (Activity-Based Costing): 1. Determine the overhead allocation rate for each cost driver. 2. Calculate the revised product costs for the four pens based on ABC using activity information collected by Dempsey. 3. Which pens are profitable and which are not profitable based on your ABC analysis

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