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Convert Absorption costing to variable costing statements

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Question 2: (10 points)
Problem 6-1A: Converting an absorption costing income statement to a variable costing income
statement L.O. P1, P2, P4, A1

Perez 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 × $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 560,000
Net 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 $20 per unit is computed as follows.
Direct materials $ 4 per unit
Direct labor $ 6 per unit
Variable overhead $ 2 per unit
Fixed overhead ($800,000 / 100,000 units) $ 8 per unit

Prepare an income statement for the company under variable costing. (Omit the "$" sign in your response.)

Variable Costing Income Statement
$ 3200000
Variable expenses
Total variable expenses
Contribution margin
Fixed expenses
Total fixed expenses


Solution Preview

PEREZ Company
Variable costing Income Statement

Sales 3,200,000

Variable ...

Solution Summary

This post illustrates how can be convert the absorption costing to variable costing in income statements.