Problem Static Comparative Income Statements and Management Analysis LO
Normandy Office Products NOP makes two types of office desks, Manager and Executive. The Executive model is adjustable using
electric motors and is made with upgraded materials. The manufacturing process for the Executive model is more complex than that
for the Manager model, requiring more frequent inspections and shorter production runs. The Manager model is a basic desk, using
good, but easy to work with, materials, and is simpler to manufacture. NOP's results for the last fiscal year are shown in the following
statement.
NOP currently uses labor costs to allocate all overhead, but management is considering implementing an activitybased costing
system. After interviewing the sales and production staff, management decides to allocate administrative costs on the basis of direct
labor costs but to use the following bases to allocate the remaining costs:
Required:
a Prepare the product line income statement using the proposed activity bases.
c Restate the product line income statement for Normandy Office Products using direct labor costs as the only overhead allocation
base.
