Reference no: EM1314996

Preparation of Income Statement using Contribution Analysis.

Omstadt Company produces and sells only two products that are referred to as RIPS and PITS. Production is \"for order\" only, and no finished goods inventories are maintained; works in process inventories are negligible.

The following data have been extracted relating to last month:

		RIPS		PITS
Sales		$180,000		$180,000
Manufacturing Costs:
Materials		$18,000		$24,000
Labor		$54,000		$48,000
Overhead		$72,000		$84,000
Selling expenses		$14,400		$10,080
Administrative expenses		$12,000		$18,000

An analysis has been made of the manufacturing overhead. Although the items listed above are traceable to the products, $36,000 of the overhead assigned to RIPS and $72,000 of that assigned to PITS are fixed. The balance of the overhead is variable.

Selling expenses consist entirely of commissions paid as a percentage of sales. Direct labor is completely variable.

Administrative expenses in the data above are fixed and cannot be traced to the products but have been arbitrarily allocated to the products.

Required:

Prepare a segmented income statement, in total and for the two products. Use the contribution approach.