Question

Sims Company, a manufacturer of tablet computers, began operations on January 1, 2019. Its cost and sales information for this year follows. 30 points $ 35 per unit 55 per unit 20 per unit $8,000,000 (per year) Manufacturing costs Direct materials Direct labor Overhead costs Variable Fixed Selling and administrative costs for the year Variable Fixed Production and sales for the year Units produced Units sold Sales price per unit $ 750,000 $5,000,000 100,000 units 70,000 units 350 per unit $

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

Answer 1

Ans. 2	SIMS   COMPANY
	Absorption Costing Income Statement
	PARTICULARS		Amount
	Sales   (70,000 * $350)		$24,500,000
	Less: Cost of goods sold
	Opening inventory	$0
	Add: Cost of goods manufactured (100,000*$190)	$19,000,000
	Cost of goods available for sale	$19,000,000
	Less: Ending inventory [(100,000 - 70,000) * $190]	-$5,700,000
	Cost of goods sold (total)		$13,300,000
	Gross margin		$11,200,000
	Selling & Administrative expenses:
	Fixed	$5,000,000
	Variable	$750,000
	Total Selling and administrative expenses		$5,750,000
	Net operating income		$5,450,000
	*Working Notes:
	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	$20.00
	Fixed overhead per unit   ($8,000,000 / 100,000)	$80.00
	Product Cost per unit	$190.00
	*Fixed overhead per unit = Fixed overhead / Units produced
	*Ending inventory   = (Units produced - Units sold) * Production cost per unit