SLP 2 Allocation and Fixed Costs 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 $300 540 220
Variable costs per unit
Direct material 120 270 70
Direct labor 90 60 60
Variable overhead 40 85 25
Variable selling and admin. exp. 10 13 9
Fixed costs
Fixed manufacturing overhead 250,000
Fixed selling and administrative 100,000
Production runs (not $) 100 75 25
Number of sales reps (not $) 30 20 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 $1,080,000
$1,320,000 $2,400,000
Variable costs:
Direct material 540,000 420,000 960,000
The submission should be 2 to 4 pages and need to include answers to all the questions listed above. Show computations, discuss the results and include references in APA format.