Trez Company began operations this year. During this first year, the company pro

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.

  
Additional Information

Selling and administrative expenses consist of $450,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.

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

Required:
1. Prepare an income statement for the company under variable costing.

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 610,000 Net income $ 990,000

Explanation / Answer

TREZ Company Variable Costing Income Statement Sales (80000 x $40) 3200000 Less: Variable expenses Cost of goods sold Beginning inventory 0 Cost of goods manufactured (100000 x $14) 1400000 Cost of goods available for sale 1400000 Ending inventory (20000 x $14) 280000 Cost of goods sold 1120000 Selling and administrative expenses (80000 x $2) 160000 Total variable expenses 1280000 Contribution margin 1920000 Less: Fixed expenses Manufacturing overheads (100000 x $6) 600000 Selling and administrative expenses 450000 Total fixed expenses 1050000 Net income (loss) 870000

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