Question

Sims Company, a manufacturer of tablet computers, began operations on January 1, 2017. Its cost and sales information for this year follows. 40 per unit 60 per unit Manufacturing costs Direct materials Direct labor Overhead costs for the year Variable overhead Pixed overhead Selling and administrative costs for the year Variable Fixed Production and sales for the year Units produced Units sold Sales price per unit $2,100,000 $8,400,000 $ 725,000 $4,250,000 105,000 units 75,000 unita 350 per unit 1. Prepare an income statement for the year using variable costing. 2. Prepare an income statement for the year using absorption costing, 3. Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

Answer 1

1.

Sims Company
Income Statement (Variable Costing)
Sales (75000*$350)		$2,62,50,000
Less: Variable costs:
Direct Materials (75000*$40)	$30,00,000
Direct labor (75000*$60)	$45,00,000
Variable Overhead ($2100000*75000/105000)	$15,00,000
Variable Selling and Administrative costs	$7,25,000
Total variable costs		$97,25,000
Contribution margin		$1,65,25,000
Less: Fixed Expenses:
Fixed Overhead costs	$84,00,000
Fixed Selling and Administrative costs	$42,50,000
Total Fixed expenses		$1,26,50,000
Net Income (Loss)		$38,75,000

2.

Sims Company
Income Statement (Absorption Costing)
Sales (75000*$350)		$2,62,50,000
Less: Cost of goods sold:
Direct Materials (75000*$40)	$30,00,000
Direct labor (75000*$60)	$45,00,000
Variable Overhead ($2100000*75000/105000)	$15,00,000
Fixed Overhead costs ($8400000*75000/105000)	$60,00,000
Cost Of Goods sold		$1,50,00,000
Gross Margin		$1,12,50,000
Less: Fixed Selling and Administrative costs:
Veriable Selling and Administrative costs	$7,25,000
Fixed Selling and Administrative costs	$42,50,000
Total Fixed Selling and Administrative costs		$49,75,000
Net Income (Loss)		$62,75,000

3.

Reparted income identical under both when units sold are equal to units produced.