Activity Allocation Base Budgeted Overhead Budgeted Use for each activity set up direct labor hours $157,500 10,500 direct labor hours Forming machine hours $187,500 75,000 machine hours machine maintenance batches $84,000 140 batches inspection units produced $21,000 70,000 units total manufacturing overhead $450,000 Would operating income increase or decrease (given the same facts in transactions 1 through 11 above) if Gordon used activities based costing for allocating overhead By how much What conclusions might Gordon Companys management accountants draw once they compared the original income statement with the ABC based income statement

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Question: Activity Allocation Base Budgeted Overhead Budgeted Use for each activity set-up direct labor hours $157,500 10,500 direct labor hours Forming machine-hours $187,500 75,000 machine hours

Activity	Allocation Base	Budgeted Overhead	Budgeted Use for each activity
set-up	direct labor hours	$157,500	10,500 direct labor hours
Forming	machine-hours	$187,500	75,000 machine hours
machine maintenance	batches	$84,000	140 batches
inspection	units produced	$21,000	70,000 units
total manufacturing overhead		$450,000

Would operating income increase or decrease (given the same facts in transactions 1 through 11 above) if Gordon used activities-based costing for allocating overhead? By how much?

What conclusions might Gordon Companys management accountants draw once they compared the original income statement with the ABC-based income statement?

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