Problem $9-59($Algo$)$ Adopting an Activity$-$Based Costing System $($LO $9-3,5,6)$

Ellis Equipment $($EE$),$ manufactures three models of lawn tractor: EE$-1000,$ EE$-1800,$ and EE$-2800.$ Because of the different materlals

used, production processes for each model differ significantly in terms of machine types and time requirements. Once parts are

produced, however, assembly time per unit required for each type of tractor is similar. For this reason, EE allocates overhead on the

basis of machine$-$hours. Last quarter, the company shipped $8,000$ EE$-1000$s$,3,200$ EE$-1800$s$,$ and $800$ EE$-2800$s$.$ The revenues and

expenses for the last quarter were as follows:

The plant manager asked the plant controller about the possiblity of adopting ABC $.$ After consulting with the production supervisors in

the plant, the controller recommended the following:

The controller also recommended that facility administration and miscellaneous fixed overhead costs not be applied to products,

especially in the initial experiment with ABC.

Required:

a$.$ Using machine$-$hours to allocate production overhead, complete the income statement for Ellis Equipment. Follow the controller's

recommendation and do not attempt to allocate facility administration or miscellaneous fixed overhead.

b$.$ Complete the income statement using the bases recommended by the controller.

c$.$ How might activity$-$based costing result in better decisions by Ellis Equipment's management?