Question

Sims Company, a manufacturer of tablet computers, began operations on January 1, 2019. Its cost and sales information for this year follows. Manufacturing costs Direct materials $ 35 per unit Direct labor $ 55 per unit Overhead costs Variable $ 40 per unit Fixed $ 6,600,000 (per year) Selling and administrative costs for the year Variable cost $ 775,000 Fixed cost $ 4,500,000 Production and sales for the year Units produced 110,000 units Units sold 80,000 units Sales price per unit $ 360 per unit

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

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

Answer 1

1)	Sims Company
	Variable Costing Income Statement
	Sales		28,800,000
	Less: Variable Cost
	Direct Material	2,800,000
	Direct Labour	4,400,000
	Manufacturing OH (Variable)	3,200,000
	Less:Selling and Administrative Expense(Variable)	775,000
	Total Variable Cost		11,175,000
	Contribution Margin		17,625,000
	Less: Fixed Expenses
	Fixed Manufacturing OH	6,600,000
	Selling and Administrative Expense(Fixed)	4,500,000	11,100,000
	Net Income		6,525,000
WN-1	Unit Product Cost	130.00
	Direct Material	35.00
	Direct Labour	55.00
	Manufacturing OH (Variable)	40.00
	Total Product Cost	130.00
2)	Sims Company
	Absorption Costing Income Statement
	Sales	28,800,000
	Less: Cost of Goods Sold	15,200,000
	Gross profit Margin	13,600,000
	Less: Selling and Administrative Expense	5,275,000
	Net Income	8,325,000
wn-2	Unit Product Cost	190.00
	Direct Material	35.00
	Direct Labour	55.00
	Manufacturing OH (Variable)	40.00
	Fixed Manufacturing OH (Per Unit)	60.00
	(Fixed Manufacturing OH / Units Produced)
	Total Product Cost	190.00