Question

Trez Company began operations this year. During this first year, the company produced 100,000 units and...

Trez Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for this year follows.

Sales (80,000 units × $45 per unit) $ 3,600,000
Cost of goods sold
Beginning inventory $ 0
Cost of goods manufactured (100,000 units × $25 per unit) 2,500,000
Cost of good available for sale 2,500,000
Ending inventory (20,000 × $25) 500,000
Cost of goods sold 2,000,000
Gross margin 1,600,000
Selling and administrative expenses 610,000
Net income $ 990,000

  
Additional Information

Selling and administrative expenses consist of $450,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.

The company's product cost of $25 per unit is computed as follows.

Direct materials $ 4 per unit
Direct labor $ 11 per unit
Variable overhead $ 3 per unit
Fixed overhead ($700,000 / 100,000 units) $ 7 per unit


Required:
1. Prepare an income statement for the company under variable costing. FILL IN CHART

TREZ Company
Variable Costing Income Statement
Total variable costs
Total fixed expenses
Net income (loss)

Homework Answers

Answer #1
TREZ Company
Variable Costing Income Statement
Sales 3600000
Less: Variable costs
Direct materials 320000 =80000*4
Direct labor 880000 =80000*11
Variable overhead 240000 =80000*3
Variable selling and administrative expenses 160000 =80000*2
Total variable costs 1600000
Contribution margin 2000000
Less: Fixed expenses
Fixed overhead 700000
Fixed selling and administrative costs 450000
Total fixed expenses 1150000
Net income (loss) 850000
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