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	$	30	per unit
Fixed	$	7,350,000	(per year)
Selling and administrative costs for the year
Variable	$	775,000
Fixed	$	5,000,000
Production and sales for the year
Units produced		105,000	units
Units sold		75,000	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

Solution 1:
SIMS Company
Variable costing income statement For the Year ended 2019
Particulars		Amount
Sales		$27,000,000.00
Variable Cost:
Direct material	$2,625,000.00
Direct labor	$4,125,000.00
Variable manufacturing overhead	$2,250,000.00
Variable selling and administrative expenses	$775,000.00
Total Variable Costs		$9,775,000.00
Contribution		$17,225,000.00
Fixed Costs:
Fixed Manufacturing Overhead	$7,350,000.00
Fixed Selling & Administrative Expenses	$5,000,000.00
Total Fixed Costs		$12,350,000.00
Net Income		$4,875,000.00
Solution 2:
SIMS Company
Absorption costing income statement For the Year ended 2019
Particulars	Details	Amount
Sales		$27,000,000.00
Cost of Goods Sold:
Direct material	$3,675,000.00
Direct labor	$5,775,000.00
Variable manufacturing overhead	$3,150,000.00
Fixed manufacturing overhead	$7,350,000.00
Total manufactuirng costs	$19,950,000.00
Less: Ending Inventory	$5,700,000.00
Cost of goods sold		$14,250,000.00
Gross Profit		$12,750,000.00
Selling & Administrative expenses:
Variable Selling & Administrative Expenses	$775,000.00
Fixed Selling & Administrative Expenses	$5,000,000.00
Total Selling & Administrative expenses		$5,775,000.00
Net Operating Income		$6,975,000.00