Herrestad Company does produce and sell two products and the details below will be used to prepare a segmented income statement (showing the income for each product and the total) for the company. Use ABC to allocate all fixed costs to the two products.
Background information
Total
Prod A
Prod B
Beginning inventory
0
Units produced
10,000
2,500
7,500
Units sold
8,000
2,000
6,000
Selling price per unit
$255
480
180
Variable costs per unit
Direct material
100
280
40
Direct labor
60
60
60
Variable overhead
25
40
20
Variable selling and admin. exp.
10
13
9
Fixed costs
Fixed manufacturing overhead
200,000
Fixed selling and administrative
100,000
Production runs (not $)
100
65
35
Number of sales reps (not $)
25
15
10
Here are the first few lines of the segmented income statement to help you get started. Complete the statement in good format and make sure you allocate the fixed costs to the two products. When done, comment on the information and the relative profitability of the two products.
Herrestad Company
Segmented Income Statement
For the period ending Dec. 31, 2011
A
B
Total
Sales
$960,000
$1,080,000
$2,040,000
Variable costs:
Direct material
560,000
240,000
800,000
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