Question

Ch 06 Ex 6-3 Submit Help Save & Exit Check my work 1 Sims Company, a manufacturer of tablet computers, began operations on January 1, 2019. Its cost and sales Information for this year follows 10 points Manufacturing costs Direct materials 35 per unit Direct labor Overhead costs 55 per unit Variable 30 per unit $7,350, eee (per year) eBook Fixed Selling and administrative costs for the year 750, eee $4,75e,eee Variable Fixed Hint Production and sales for the year Units produced 105,eee units 75, eee units 360 per unit Units sold Sales price per unit Ask 1. Prepare an Income statement for the year using varlable costing. 2. Prepare an Income statement for the year using absorption costing.

Answer 1

Ans. 1	In variable costing method, the unit product cost is the sum of only variable
	manufacturing costs per unit
	Unit product cost under Variable Costing:
	Direct materials	$35.00
	Direct labor	$55.00
	Variable Overhead per unit	$30.00
	Total production cost per unit	$120.00
	SIMS   COMPANY
	Variable Costing Income Statement
	PARTICULARS		Amount
	Sales   (75,000 * $360)		$27,000,000
	Less: Variable cost of goods sold:
	Opening inventory	$0
	Add: Variable cost of goods manufactured (105,000 * $120)	$12,600,000
	Variable cost of goods available for sale	$12,600,000
	Less: Ending inventory [(105,000 - 75,000) * $120]	-$3,600,000
	Variable cost of goods sold		$9,000,000
	Gross Contribution Margin		$18,000,000
	Less: Variable Selling and Administrative Expenses		$750,000
	Contribution Margin		$17,250,000
	Less: Fixed expenses:
	Fixed manufacturing overhead	$7,350,000
	Fixed selling and administrative expenses	$4,750,000	$12,100,000
	Net operating income		$5,150,000
	*Variable cost of goods manufactured = Units produced * Variable unit product cost
Ans. 2	In Absorption costing method, the unit product cost is the sum of all manufacturing costs per unit
	whether it is fixed or variable.
	Unit product cost under Absorption Costing:
	Direct materials	$35.00
	Direct labor	$55.00
	Variable Overhead per unit	$30.00
	Fixed overhead per unit   ($7,350,000 / 105,000)	$70.00
	Product Cost per unit	$190.00
	*Fixed overhead per unit = Fixed overhead / Units produced
	SIMS   COMPANY
	Absorption Costing Income Statement
	PARTICULARS		Amount
	Sales   (75,000 * $360)		$27,000,000
	Less: Cost of goods sold
	Opening inventory	$0
	Add: Cost of goods manufactured (105,000*$190)	$19,950,000
	Cost of goods available for sale	$19,950,000
	Less: Ending inventory [(105,000 - 75,000) * $190]	-$5,700,000
	Cost of goods sold (total)		$14,250,000
	Gross margin		$12,750,000
	Selling & Administrative expenses:
	Fixed	$4,750,000
	Variable	$750,000
	Total Selling and administrative expenses		$5,500,000
	Net operating income		$7,250,000
	*Ending inventory   = (Units produced - Units sold) * Production cost per unit