Question

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 550 per unit) $4,000,000 Cost of goods sold Beginning inventory $ e Cost of goods manufactured (100,000 units * $38 per unit) 3, eee,eee Cost of goods available for sale 3,600,000 Ending inventory (20,000 $30) 600,000 Cost of goods sold 2,480,ce Gross margin 1,680,000 Selling and administrative expenses 560, Net income $1,000,000 Additional Information Selling and administrative expenses consist of $400,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses. b. The company's product cost of $30 per unit is computed as follows. Sa per unit $14 per unit Direct materials Direct labor Variable overhead Fixed overhead ($900,000 / 100,000 units) $3 per unit 59 per unit Required: 1. Prepare an income statement for the company under variable costing. 2. Fill in the blanks Complete this question by entering your answers in the tabs below. Required Required 1 2 Prepare an income statement for the company under variable costing. TREZ Company Variable Costing Income Statement 5 Sales 4,000,000 Less: Variable costs Direct materials Drect labor Variable overhead Contribution margin Less: Fixed expenses Fixed overhead Fixed seling and administrative costs Net Income poss) Required 2 >

Answer 1

Solution:

Below is the Income Statement of Trez Company using Variable Costing:

Working 4,000,000 TREZ COMPANY VARIABLE COSTING INCOME STATEMENT Sales Variable Costs Direct Materials 320,000 Direct Labor 1,120,000 Variable Overhead 240,000 Variable Selling & Administrative Overhead 160,000 (80,000 UNITS * $4) (80,000 UNITS * $14) (80,000 UNITS * $3) (80,000 UNITS * $2) 1,840,000 (320,000 +1120,000 +240,000 +160,000) 2,160,000 (4,000,000 - 1,840,000) Total variable costs Contribution Margin Less :Fixed Expenses Fixed Overhead Fixed Selling & Administrative Overhead 900,000 400,000 (560,000 - 160,000) (Total - Variable) Total Fixed expenses Net Income (loss) 1,300,000 (900,000 + 400,000) 860,000 (2,160,000-1,300,000)