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
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................................................$5 per unit
Direct labor...................................................$ 14 per unit
Variable overhead.............................................$2 per unit
Fixed overhead ($900,000/100,000 units).................$9 per unit
Required
1. Prepare an income statement for the company under variable costing.
2. Explain any difference between the income under variable costing (from part 1) and the income reported above.

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$4,000,000 Sales (80,000 units × $50 per unit) . . . . . . . . . . . . . . . Cost of goods sold Beginning inventory Cost of goods manufactured (100,000 units Cost of goods available for sale.. $30 per unit) . . . . . . . . 3,000,000 3,000,000 600,000 inventory (20,000 × $30) Cost of goods sold Gross margin... Selling and administrative expenses . Net income . . 2.400,000 1,600,000 530,000 $1,070,000 ..