Question

Problem 19-2A Variable costing income statement and conversion to absorption costing income LO P2, P3

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 × $40 per unit) $ 3,200,000
Cost of goods sold
Beginning inventory $ 0
Cost of goods manufactured (100,000 units × $20 per unit) 2,000,000
Cost of good available for sale 2,000,000
Ending inventory (20,000 × $20) 400,000
Cost of goods sold 1,600,000
Gross margin 1,600,000
Selling and administrative expenses 590,000
Net income $ 1,010,000

Additional Information

Selling and administrative expenses consist of $450,000 in annual fixed expenses and $1.75 per unit in variable selling and administrative expenses.

The company's product cost of $20 per unit is computed as follows.

Direct materials $ 4 per unit
Direct labor $ 5 per unit
Variable overhead $ 3 per unit
Fixed overhead ($800,000 / 100,000 units) $ 8 per unit
Prepare an income statement for the company under variable costing.

Answer 1

Instructions are listed below.

Step-by-step explanation:

Giving the following information:

Trez Company began operations this year. During this first year, the company produced 100,000 units and sold 80,000 units.

Selling price= $40

Selling and administrative expenses consist of $450,000 in annual fixed expenses and $1.75 per unit in variable selling and administrative expenses.

Direct materials $ 4 per unit

Direct labor $ 5 per unit

Variable overhead $ 3 per unit

Fixed overhead ($800,000 / 100,000 units) $ 8 per unit

Income statement (variable costing):

Sales= 80,000*40= 3,200,000

Variable costs= (4+5+3+1.75)*80,000= 1,100,000

Contribution margin= 2,100,000

Fixed overhead= 800,000

Fixed Selling and administrative expenses= 450,000

Net income= 850,000