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 4,000,000 Sales (80,000 units x $50 per unit) Cost of goods sold Beginning inventory Cost of goods manufactured (100,000 units$30 per unit) 3,000,000 Cost of good available for sale Ending inventory (20,000 x $30) 3,000,000 600,000 Cost of goods sold 2,400,000 Gross margin Selling and administrative expenses 1,600,000 530,000 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 Direct labor Variable overhead Fixed overhead (5900,000/100,000 units) S 5 per unit s 14 per unt $ 2 per unit $ 9 per unit

Explanation / Answer

Answer

Working for Selling & Administrative Overhead

Units sold

per unit

Amount

Variable Selling & Administrative overhead

80000

2.25

180000

Fixed Selling & Administrative Overhead

350000

Total Selling and Administrative overhead (as shown in Absorption costing Income Statement)

530000

Income Statement using Variable Costing Method

A

Sales

4000000

Variable Costs

[80000 units x rate per unit]

Direct Materials

400000

Direct Labor

1120000

Variable Overhead

160000

variable Selling & Administrative Overhead

180000

B

Total variable Costs

1860000

C=A-B

Contribution Margin

2140000

Fixed Costs

Fixed Overhead

900000

Fixed Selling & Administrative Overhead

350000

D

Total Fixed expenses

1250000

E=C-D

Net Income (loss)

890000

Units sold

per unit

Amount

Variable Selling & Administrative overhead

80000

2.25

180000

Fixed Selling & Administrative Overhead

350000

Total Selling and Administrative overhead (as shown in Absorption costing Income Statement)

530000

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