ABC Clothing wants to create an income statement where cost of goods sold and overhead is allocated
using Activity-Based-Costing techniques. Below, find a breakdown of the direct materials, direct labor,
manufacturing, and non-manufacturing costs for ABC Clothing and help finish their income statement.
Cutting Department
Cost of shirt materials
Cost of pant materials
Total cost of materials
Cutting Department
Workers' hours on shirts
Workers' hours on pants
Total workers' hours
Cutting Department
Workers' wages
Stitching Department
$250,000 Cost of shirt materials
350.000 Cost of pant materials
$600,000 Total cost of materials
$105,000
45.000
$150,000 $750,000
Stitching Department
40,000 Workers' hours on shirts
60,000 Workers' hours on pants
100,000 Total workers' hours
15,000 hours
10,000 hours
25,000 hours
Stitching Department
$400,000 Workers' wages
$100,000 $500,000
Breakdown of other manufacturing and non-manufacturing costs
Worker Machine
Clothing Materials
General Administrat
Costs
Inspect
Turnover
Repairs
Design Orders
and
marketing
ive
Total Cutting Department Overhe $
1,400,000 $
$
Total Stitching Department Over $
750,000 $
$
480,000 $ 220,000 $ 500,000 $ 100,000 $ 100,000 $
190,000 $ 360,000 $
$ 50,000 $ 150,000 $
Quality control inspectors
$
300,000 $
270,000 $
$
$
$
$
30,000
Department heads
$
200,000 $
$
80,000 $
$ 60,000 $
$
60,000
Factory superintendent
$
150,000 $
$
$
$ 75,000 $
$
75,000
Company president
$
450,000 $
$
$
$
$
$
$ 450,000
Headquarters staff
$
250,000 $
$
62,500 $
$
$ 62,500 $ 62,500 $ 62,500
Headquarters overhead
$
300,000 $
Total
$
3,800,000
$
$270,000
120,000 $
$
$ 60,000 $ 60,000 $ 60,000
$932,500 $580,000 $635,000 $272,500 $537,500
$572,500 $3,800,000
Five activities identified as creating overhead costs. Their dollar amounts are above while their activity level breakdown is provided below
1.Inspections
2. Worker turnover
3. Machine repairs
4. Clothing design
5. Materials orders
Shirts
Inspections
Worker Turnover
Machine Repairs
Clothing Design
Materials Orders
Pants
80
29
1,200
95
45
20
1
200
5
5
A first draft of an income statement is provided below created by a junior accountant. Finish up the work using Activity-Based Costing.
Fill in the vellow highlighted fields using the information above (assume non-manufacturing expenses can be allocated equally between shirts and pants)
ABC Clothing
Sales
Direct Materials
Direct Labor
Manufacturing Overhead
General and marketing
Administrative
Income before taxes
Units
600,000
350,000
Shirts
Pants
Total
$3,000,000
$2,800,000
$5,800,000
$355,000
$395,000
$750,000
$400,000
$100,000
$500,000
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