Question

Rey Company's single product sells at a price of $236 per unit. Data for its single product for its first year of operations follow. Direct materials Direct labor Overhead costs Variable overhead Fixed overhead per year Selling and administrative expenses Variable Fixed Units produced and sold 40 per unit 48 per unit 4 per unit $ 141,000 per year $ 38 per unit $ 240,000 per year 23,500 units 1. Prepare an income statement for the year using absorption costing 2. Prepare an income statement for the year using variable costing.

Answer 1

		REY COMPANY
	Aborption costing income statement
	Sales					5546000
	less: Cost of good sold
	Direct materials				940000
	Direct labor				1128000
	Variable overhead costs				94000
	Fixed overhead costs				141,000
	cost of goods sold					2,303,000
	Gross margin					3,243,000
	Selling and administrative expenses:
	Fixed selling and administrative costs				240,000
	Variable selling and administrative expenses				893000
	total selling ,general and administrative expenses					1,133,000
	Net income (loss)					2,110,000
	Variable costing income statement
	Sales:					5546000
	less:Variable costs
	Direct materials				940000
	Direct labor				1128000
	variable overhead costs				94000
	Variable selling & adm costs				893000
	total variable costs					3055000
	Contribution margin					2491000
	less:Fixed expenses
	Fixed selling and adminisrative costs				240,000
	Fixed overhead costs				141,000
	total fixed costs					381,000
	net income (loss)					2,110,000