Torres 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 its first year of operations follows.
Sales (80,000 units × $50 per unit) |
| $4,000,000 |
Cost of goods sold |
|
|
Beginning inventory | $ 0 |
|
Cost of goods manufactured (100,000 units × $30 per unit) | 3,000,000 |
|
Cost of goods available for sale | 3,000,000 |
|
Ending inventory (20,000 × $30) | 600,000 |
|
Cost of goods sold |
| 2,400,000 |
Gross margin |
| 1,600,000 |
Selling and administrative expenses |
| 530,000 |
Net income |
| $1,070,000 |
Additional Information
a.Selling and administrative expenses consist of $350,000 in annual fixed expenses and $2.25 per unit in variable selling and administrative expenses.
b.The company’s product cost of $30 per unit is computed as follows.
Direct materials | $5 per unit |
Direct labor | $ 14 Per unit |
Variable overhead | $2 per unit |
Fixed overhead ($900,000/100,000 units) | $9 per unit |
Required
1.Prepare an income statement for the company under variable costing.
2.Explain any difference between the income under variable costing (from part 1) and the income reported above
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