Rey Companys single product sells at a price of $228 per unit. Data for its single product for its first year of operations follow.

Direct materials	$	32	per unit
Direct labor	$	40	per unit
Overhead costs
Variable overhead	$	12	per unit
Fixed overhead per year	$	385,000	per year
Selling and administrative expenses
Variable	$	30	per unit
Fixed	$	224,000	per year
Units produced and sold		27,500	units

1. Prepare an income statement for the year using absorption costing 2. Prepare an income statement for the year using variable costing.

Prepare an income statement for the year using variable costing. REY COMPANY Variable Costing Income Statement $ 6,270,000 Sales Less: Variable costs Direct materials Direct labor $ 880,000 1,100,000 330,000 825,000 Variable overhead costs Variable selling and administrative expenses 3,135,000 3,135,000 Total variable costs Contribution margin Less: Fixed expenses Fixed overhead costs Fixed selling and administrative costs 385,000 224,000 Total fixed expenses Net income (loss) 609,000 2,526,000 $ Required 1 Required 2 Prepare an income statement for the year using absorption costing. REY $ 6,270,000 REY COMPANY Absorption Costing Income Statement Sales Less: Cost of goods sold Direct materials $ 880,000 Direct labor 1,100,000 Variable overhead costs 330,000 Fixed overhead costs 385,000 Cost of goods sold Gross margin 2,695,000 3,575,000 Variable selling and administrative expenses Variable selling and administrative expenses 825,000 224,000 Total selling, general and administrative expenses Net income (loss) 1,049,000 $ 2,526,000 Prepare an income statement for the year using variable costing. REY COMPANY Variable Costing Income Statement $ 6,270,000 Sales Less: Variable costs Direct materials Direct labor $ 880,000 1,100,000 330,000 825,000 Variable overhead costs Variable selling and administrative expenses 3,135,000 3,135,000 Total variable costs Contribution margin Less: Fixed expenses Fixed overhead costs Fixed selling and administrative costs 385,000 224,000 Total fixed expenses Net income (loss) 609,000 2,526,000 $ Required 1 Required 2 Prepare an income statement for the year using absorption costing. REY $ 6,270,000 REY COMPANY Absorption Costing Income Statement Sales Less: Cost of goods sold Direct materials $ 880,000 Direct labor 1,100,000 Variable overhead costs 330,000 Fixed overhead costs 385,000 Cost of goods sold Gross margin 2,695,000 3,575,000 Variable selling and administrative expenses Variable selling and administrative expenses 825,000 224,000 Total selling, general and administrative expenses Net income (loss) 1,049,000 $ 2,526,000