The document presents income statements for Sparkle Company using different costing methods - plantwide overhead, departmental overhead, and activity-based costing. It shows the product costs and gross profits for three product styles. Under activity-based costing, specific activities are traced to products based on cost drivers like production runs or machine hours. This allows a more accurate allocation of overhead costs than traditional costing methods.

1. Sparkle Company
income statement [Plantwide overhead]
Product Style stars geeks fashions total
sales revenue
units sold 750 450 350
price per unit $ 80.00 $ 95.00 $ 100.00
$ 60,000.00 $ 42,750.00 $ 35,000.00 $137,750.00
product costs
Direct Materials $ 4,000.00 $ 2,500.00 $ 2,000.00 $ 8,500.00
Direct Labor
2000 Direct Labor Hours x DLH Cost $20 $ 40,000.00
2000 Direct Labor Hours x DLH Cost $20 $ 40,000.00
2000 Direct Labor Hours x DLH Cost $20 $ 40,000.00
Total $ 40,000.00 $ 40,000.00 $ 40,000.00 $120,000.00
Factory Overhead
estimated overhead: $600,000 / estimated Direct Labor Hours: 2000 = $300
$300 x 100 Direct Labor Hours $ 30,000.00
$300 x 120 Direct Labor Hours $ 36,000.00
$300 x 110 Direct Labor Hours $ 33,000.00
Total $ 30,000.00 $ 36,000.00 $ 33,000.00 $ 99,000.00
Total Product Costs $ 74,000.00 $ 78,500.00 $ 75,000.00 $227,500.00
gross profit $(14,000.00) $(35,750.00) $(40,000.00) $(89,750.00)

2. Sparkle Company
income statement [departmental overhead]
Product Style stars geeks fashions total
sales revenue
units sold 750 450 350
price per unit $ 80.00 $ 95.00 $ 100.00
$60,000.00 $42,750.00 $35,000.00 $137,750.00
product costs
Direct Materials $ 4,000.00 $ 2,500.00 $ 2,000.00 $ 8,500.00
Direct Labor
Assembly dept. Direct Labor Hours : 5 x DLH Cost $20 $ 100.00
Packing dept. Direct Labor Hours : 95 x DLH Cost $20 $ 1,900.00
Assembly dept. Direct Labor Hours : 5 x DLH Cost $20 $ 100.00
Packing dept. Direct Labor Hours : 95 x DLH Cost $20 $ 2,300.00
Assembly dept. Direct Labor Hours : 5 x DLH Cost $20 $ 100.00
Packing dept. Direct Labor Hours : 105 x DLH Cost $20 $ 2,100.00
Total $ 2,000.00 $ 2,400.00 $ 2,200.00 $ 6,600.00
Factory Overhead
assembly overhead costs: $510,000 / Assembly Machine Hours: 7,500 = $68
Packaging overhead costs: $90,000 / Packaging Direct Labor Hours 1,200 = $75
$68 x410 machine hours $ 27,880.00
$75 x 95 Direct Labor Hours $ 7,125.00
$68 x 200 machine hours $ 13,600.00
$75 x 115 Direct Labor Hours $ 8,625.00
$68 x 210 machine hours $ 14,280.00
$75 x 105 Direct Labor Hours $ 7,875.00
Total $34,000.00 $22,225.00 $22,155.00 $ 78,380.00
Total Product Costs $40,000.00 $27,125.00 $26,355.00 $ 93,480.00
gross profit $20,000.00 $15,625.00 $ 8,645.00 $ 44,270.00

3. Sparkle Company
income statement [Activity Based Costing]
Product Style stars geeks fashions total
sales revenue
units sold 750 450 350
price per unit $ 80.00 $ 95.00 $ 100.00
$60,000.00 $42,750.00 $ 35,000.00 $137,750.00
product costs
Direct Materials $ 4,000.00 $ 2,500.00 $ 2,000.00 $ 8,500.00
Direct Labor
Assembly dept. Direct Labor Hours : 5 x DLH Cost $20 $ 100.00
Packing dept. Direct Labor Hours : 95 x DLH Cost $20 $ 1,900.00
Assembly dept. Direct Labor Hours : 5 x DLH Cost $20 $ 100.00
Packing dept. Direct Labor Hours : 95 x DLH Cost $20 $ 2,300.00
Assembly dept. Direct Labor Hours : 5 x DLH Cost $20 $ 100.00
Packing dept. Direct Labor Hours : 105 x DLH Cost $20 $ 2,100.00
Total $ 2,000.00 $ 2,400.00 $ 2,200.00 $ 6,600.00
Factory Overhead quantity quantity quantity
Production setup ($400 per run) 4 $ 1,600.00 8 $ 3,200.00 16 $ 6,400.00
Order processing ($800 per order) 8 $ 6,400.00 8 $ 6,400.00 4 $ 3,200.00
Material Handeling ($5 per pound) 400 $ 2,000.00 200 $ 1,000.00 200 $ 1,000.00
Equipment Depreciation and maintanence ($14 per hour) 500 $ 7,000.00 300 $ 4,200.00 300 $ 4,200.00
quality management 2500 per inspection ($2500 per inspection) 2 $ 5,000.00 2 $ 5,000.00 2 $ 5,000.00
packing and shipping 4 per unit ($4 per unit) 750 $ 3,000.00 450 $ 1,800.00 350 $ 1,400.00
Total Activity Costs $25,000.00 $21,600.00 $ 21,200.00 $ 67,800.00
Total Product Costs $31,000.00 $26,500.00 $ 25,400.00 $ 82,900.00
gross profit $29,000.00 $16,250.00 $ 9,600.00 $ 54,850.00

4. Sparkle Company
Activity based costing: calculations
activity cost driver estimated costs activity cost driver Total costs
Production setup # of production runs $ 80,000.00 200 $ 400.00
Order Processing # of orders $ 160,000.00 200 $ 800.00
Material Handeling # of pounds of material $ 40,000.00 8,000 $ 5.00
Equipment Depreciation and maintanence # of machine hours $ 140,000.00 10,000 $ 14.00
quality management # of inspections $ 100,000.00 40 $ 2,500.00
packing and shipping # of units shipped $ 80,000.00 20,000 $ 4.00
Total Costs $ 600,000.00