Sanchez Equipment Company manufactures and distributes industrial air compressors.

The following costs are available for the year ended December 31, 2010.The company has no beginning inventory. In 2010, 1,500 units were produced, but only 1,200 units were sold. The unit

selling price was $4,500. Costs and expenses were:

98 Chapter 22 Cost-Volume-Profit

Variable costs per unit

Direct materials $ 900

Direct labor 1,500

Variable manufacturing overhead 300

Variable selling and administrative expenses 70

Annual fixed costs and expenses

Manufacturing overhead $1,400,000

Selling and administrative expenses 100,000?

Instructions

(a) Compute the manufacturing cost of one unit of product using variable costing.

(b) Prepare a 2010 income statement for Sanchez Company using variable costing.