Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 45

Activity-Based Reporting: Service Organization

Allcott Computer Services (ACS) provides computer training and repair services for schools and local businesses. Sales for year 1 totaled $1,350,000. Information regarding resources for the year includes the following:

	Resources Used	Resources Supplied
Marketing	$112,000	$120,000
Depreciation	87,000	89,500
Training personnel	45,000	54,000
Energy	80,000	85,500
Short-term labor	225,000	310,000
Long-term labor	415,000	425,000
Administrative	70,000	79,000

In addition, ACS spent $42,000 on 500 repair verifications with a cost driver rate of $75.

Required

Management has requested that you do the following:

a.Prepare a traditional income statement.

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b.Prepare an activity-based income statement.

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c.Write a short report to management explaining why the activity-based income statement provides useful information to managers. Use the information from requirements (a) and (b) to develop examples for your report.

Step 1 of 3

a.

Sales			$1,350,000
Marketing	$120,000
Depreciation	89,500
Training personnel	54,000
Energy	85,500
Short-term labor	310,000
Long-term labor	425,000
Administrative	79,000
Repair verification	42,000
Total costs			1,205,000
Operating profit			$? 145,000