2Trez 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 × $45 per unit)$ 3,600,000Cost of goods sold2,000,000Gross profit1,600,000Selling and administrative expenses560,000Income$ 1,040,000 Additional InformationSelling and administrative expenses consist of $400,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.The company's product cost of $25 per unit consists of the following. Direct materials$ 4per unitDirect labor$ 10per unitVariable overhead$ 4per unitFixed overhead ($700,000 / 100,000 units)$ 7per unitRequired:Prepare an income statement for the company under variable costing.

Answered: Trez Company began operations this…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 × $45 per unit)	$ 3,600,000
Cost of goods sold	2,000,000
Gross profit	1,600,000
Selling and administrative expenses	560,000
Income	$ 1,040,000

Additional Information

Selling and administrative expenses consist of $400,000 in annual fixed expenses and $2 per unit in variable selling and administrative expenses.
The company's product cost of $25 per unit consists of the following.

Direct materials	$ 4	per unit
Direct labor	$ 10	per unit
Variable overhead	$ 4	per unit
Fixed overhead ($700,000 / 100,000 units)	$ 7	per unit

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

Expert Solution

Step 1

Answer :

Direct material cost = 80,000 * $4 = $320,000

Direct labor cost = 80,000 * $10 = $800,000

variable overhead cost = 80,000 * $4 = $320,000

Variable selling and administrative cost = 80,000 * $2 =$160,000

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