Calculate the fixed costs to the two products, Cost Accounting

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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.


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