Question

Trez Company began operations thils year. During tils irst year, tne company produced 100,000 units and sold 30,000 unitS. The aborption coeting Income statement for thls year follows. Sales (80,000 unts* $40 per unit) Cost of goods sold 5 3200000 Eeginning Inventory Cost of goods manutactured (100,000 unts* $20 per uni 2000,000 Cost of good avallable for sale Ending Inventory (20,000* $20) 2,000,000 400.000 Cost of goods sold 1,600,000 Gross margin Selling and administrative expenses 1,600,000 630.000 Net Income 5 970000 a. Selling and adminlstratve expenses conslet of $450,000 in annual fed expenses and s2 25 per unit in varlable elling and adminletrarve expene86. b. The company's product cost of $20 per un ls computed as tollows Direct materlals Direct labor arlable overhead Fbved ovemead (5300 000 100000 unita) $ 4 per unt 5 6 per unt 5 2 per unit 8per unlt Required: 1. Prepare an Income statement tor the company under varlable costing TREZ Company Sales arlable cpeta Direct labor Direct materiale arlable overnea0 arlable selling and adminlstratve expenes margin F bved expenses overnead and adminletratve 00sta Net Income (o55)

Answer 1

Solution:

Trez Company
Variable Costing Income Statement
Particulars		Amount
Sales		$3,200,000.00
Variable Cost:
Direct material (80000*$4)	$320,000.00
Direct labor (80000*$6)	$480,000.00
Variable overhead (80000*$2)	$160,000.00
Variable selling and administrative expenses (80000*$2.25)	$180,000.00
Total Variable Costs		$1,140,000.00
Contribution Margin		$2,060,000.00
Less: Fixed Expenses:
Fixed overhead	$800,000.00
Fixed selling and administrative expenses	$450,000.00
Total fixed expenses		$1,250,000.00
Net Income		$810,000.00