1. Present an Activity-Based Costing (ABC) income statement for each pen (use the appendix for your income statements) based on the activity information collected by Dempsey. Discuss in general, managerial terms the differences between your activity-based income statements and the traditional income statements presented in the case (Exhibit 1).
2. How much expense related to "handling production run activity" was allocated to Blue pens on the traditional income statement (Exhibit 1) versus the amount allocated on your ABC income statements? Explain what causes the difference.
3. Assuming Classic Pen Company is a publicly held corporation, could your ABC costs provided for question 1 above be used to report product costs in financial statements released to shareholders? Justify your answer.
4. As a manager of Classic Pen Company, what decisions would you make in light of your newly prepared activity-based costing analysis?