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Prepare a Segmented Income Statement

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. Need comments 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.

Solution Preview

ANSWER
SEGMENT INCOME STATEMENT
A B Total
sales-a 1080000 1320000 2400000
less:
variable costs
direct materials 540000 420000 960000
direct labor 120000 360000 480000
variable overhead 170000 150000 320000
variable selling and admn expenses 26000 54000 80000
totalvariablecosts ...

Solution Summary

The income is prepared in an attached Excel sheet where you can highlight the cells to view the formulae.

$2.19