Question

Tri-State Mill uses a special sander to finish lumber. Data on the sander and its usage follow.

	Cost Driver Rate			Cost Driver Volume
Resources used
Energy	$	0.80	per machine-hour	6,500	machine-hours
Repairs	$	20	per job	550	jobs
Resources supplied
Energy	$	8,400
Repairs	$	13,500

Sales revenue from finishing totaled $45,000.

Required:

a. Prepare a traditional income statement.

Finishing Sales:

Energy Costs:

Repair Costs:

Operating Profit?

b. Prepare an activity-based income statement.

Resources Used Unused Resource Capacity    Resources Supplied

Volume Related- Energy

Batch Related- Repairs

Answer 1

Answer-a)-

TRI-STATE MILL
TRADITIONAL INCOME STATEMENT
PARTICULARS	AMOUNT	AMOUNT
	$	$
Sales Revenue		45000
Less- Costs
Energy Costs	8400
Repair Costs	13500	21900
Total Costs
Operating Profit		23100

b)-

TRI-STATE MILL
ACTIVITY-BASED INCOME STATEMENT
PARTICULARS	RESOURCES USED	UNUSED RESOURCE CAPACITY	RESOURCES SUPPLIED	Total
	$	$	$	$
Sales Revenue				45000
Less- Costs
Volume Related:-
Energy	6500 hours*$0.80 per hour =5200	$8400-$5200 = $3200	8400
Batch Related:-
Repairs	550 jobs*$20 per job =11000	$13500-$11000 = $2500	13500
Total Costs $	16200	5700	21900	21900
Operating profit				23100