Commonwealth Devices makes three wearable fitness devices at its Lake Plant: CFit-1, CFit-2, and CFit-Xtra. The company has for many years allocated overhead to products using machine-hours. Last year, the Lake Plant produced and shipped 8,000 units of CFit-1, 14,000 units of CFit-2, and 8,000 units of CFit-Xtra. The plant recorded the following revenues and costs:

The Lake Plant has put together an employee team to recommend a possible activity-based cost system, including cost allocation bases. The employee team recommends the following: 

The employee team further recommends that administration costs not be allocated to products. 

Required

a. Using machine-hours to allocate overhead, complete the income statement for the Lake Plant. Do not allocate administrative costs to products.

b. Complete the income statement using the activity-based costing method suggested by the employee team.

c. Write a brief report indicating how activity-based costing might result in better decisions by managers at Commonwealth Devices and the Lake Plant.

d. After hearing the recommendations, the plant manager expresses concern about failing to allocate administrative costs. If plant administrative costs were to be allocated to products, how would you allocate them?

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Sales revenue Direct costs Direct materials.. Direct labor..... Variable overhead Machine setup... Order processing Materials handling.. Machining... Shipping... Contribution margin Plant administration costs Gross profit..... COMMONWEALTH DEVICES Lake Plant Income Statement CFit-1 CFit-2 $864,000 $1,260,000 192,000 40,000 280,000 52,500 CFit-Xtra Total $1,296,000 $3,420,000 240,000 120,000 712,000 212,500 192,000 144,000 192,000 96,000 72,000 $1.799,500 1,400,000 $ 399,500