Trez Company began operations this year. During this year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for this year follows. Income Statement (Absorption Costing) Sales (80,000 units × $50 per unit) Cost of goods sold Gross profit Selling and administrative expenses Income Additional Information a. 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 consists of the following. Direct materials Direct labor Variable overhead Fixed overhead ($600,000 / 100,000 units) Required: Prepare an income statement for the company under variable costing. Sales Less: Variable expenses Variable cost of goods sold Variable selling and administrative expenses Total variable costs Contribution margin Less: Fixed expenses Fixed overhead Fixed selling and administrative costs Total fixed expenses Income 4,000,000 2,400,000 1,600,000 560,000 1,040,000 Answer is complete but not entirely correct. TREZ Company Income Statement (Variable Costing) > $3 per unit $ 18 per unit $3 per unit $6 per unit ●●00 $2,400,000 X 160,000 $ 600,000 400,000 4,000,000 2,560,000 1,920,000 1,000,000 $ 920,000
Trez Company began operations this year. During this year, the company produced 100,000 units and sold 80,000 units. The absorption costing income statement for this year follows. Income Statement (Absorption Costing) Sales (80,000 units × $50 per unit) Cost of goods sold Gross profit Selling and administrative expenses Income Additional Information a. 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 consists of the following. Direct materials Direct labor Variable overhead Fixed overhead ($600,000 / 100,000 units) Required: Prepare an income statement for the company under variable costing. Sales Less: Variable expenses Variable cost of goods sold Variable selling and administrative expenses Total variable costs Contribution margin Less: Fixed expenses Fixed overhead Fixed selling and administrative costs Total fixed expenses Income 4,000,000 2,400,000 1,600,000 560,000 1,040,000 Answer is complete but not entirely correct. TREZ Company Income Statement (Variable Costing) > $3 per unit $ 18 per unit $3 per unit $6 per unit ●●00 $2,400,000 X 160,000 $ 600,000 400,000 4,000,000 2,560,000 1,920,000 1,000,000 $ 920,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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2 part 3
Transcribed Image Text:**Trez Company Financial Overview**
Trez Company began operations this year. During the year, the company produced 100,000 units and sold 80,000 units. Below is the absorption costing income statement for the year.
**Income Statement (Absorption Costing)**
- **Sales (80,000 units x $50 per unit):** $4,000,000
- **Cost of Goods Sold:** $2,400,000
- **Gross Profit:** $1,600,000
- **Selling and Administrative Expenses:** $560,000
- **Income:** $1,040,000
**Additional Information**
a. 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 consists of:
- **Direct Materials:** $3 per unit
- **Direct Labor:** $18 per unit
- **Variable Overhead:** $3 per unit
- **Fixed Overhead ($600,000 / 100,000 units):** $6 per unit
**Required**
Prepare an income statement for the company under variable costing.
**Variable Costing Income Statement**
Below is the income statement prepared using variable costing:
- **Sales:** $4,000,000
- **Less: Variable Expenses**
- **Variable Cost of Goods Sold:** $2,400,000
- **Variable Selling and Administrative Expenses:** $160,000
- **Total Variable Costs:** $2,560,000
- **Contribution Margin:** $1,920,000
- **Less: Fixed Expenses**
- **Fixed Overhead:** $600,000
- **Fixed Selling and Administrative Costs:** $400,000
- **Total Fixed Expenses:** $1,000,000
- **Income:** $920,000
**Analysis**
This chart displays the company's financial performance using variable costing methods. The contribution margin and the breakdown of fixed and variable costs are essential for understanding profitability and cost management.
**Note:** The analysis mentions that the answer provided is complete but not entirely correct, suggesting further review may be needed.
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