Question

Sims Company, a manufacturer of tablet computers, began operations on January 1, 2019. Its cost and sales information for this year follows $ $ 35 per unit 55 per unit 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 $ 30 per unit $7,350,000 (per year) $ 700,000 $4,250,000 5 105,000 units 75,000 units 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

	Income Statement Under Variable Costing
	Sales(75000*360)		2,70,00,000
	Less: Variable Cost of Goods Sold
	Direct Material (75000*35)	26,25,000
	Direct Labor (75000*55)	41,25,000
	Variable Overheads (75000*30)	22,50,000	90,00,000
	Gross Contribution		1,80,00,000
	Less: Variable Selling Expense		7,00,000
	Net Contribution		1,73,00,000
	Less: Period Expense
	Fixed Overhead		73,50,000
	Fixed S&A Expense		42,50,000
	Net Operating Income		57,00,000
	Income Statement Under Absorption Costing
	Sales(75000*360)		2,70,00,000
	Less: Variable Cost of Goods Sold				Fixed Overhead	73,50,000
	Direct Material (75000*35)	26,25,000			Total Units Produced	1,05,000
	Direct Labor (75000*55)	41,25,000			Fixed Overhead PU	70.00
	Variable Overheads (75000*30)	22,50,000
	Fixed Overhead (75000*70)	52,50,000	1,42,50,000
	Gross Contribution		1,27,50,000
	Less: Variable Selling Expense		7,00,000
	Net Contribution		1,20,50,000
	Less: Period Expense
	Fixed S&A Expense		42,50,000
	Net Operating Income		78,00,000