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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
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
Number of sales reps (not $)
30
20
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
Sales
$1,080,000
$1,320,000
$2,400,000
Variable costs:
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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