Question

Sims Company, a manufacturer of tablet computers, began operations on January 1, 2017. Its cost and sales information for this year follows. 30 per unit se per unit $2.000.000 $8,000,000 Manufacturing costs Direct materials Direct labor Overhead costs for the year Variable overhead Fixed overhead 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 $4,250,000 100,000 units 70,000 units 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? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare an income statement for the year using variable costing. SIMS COMPANY Variable Costing Income Statement

Answer 1

Answer-1)-

Sims Company
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	70000 units*$350 per unit		26250000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		10000000
Direct materials	100000 units*$30 per unit	3000000
Direct labor	100000 units*$50 per unit	5000000
Variable manufacturing overhead		2000000
Variable cost of goods available for sale		10000000
Less:- Closing inventory	30000 units*$100 per unit	3000000	7000000
Gross contribution margin (c= a-b)			19250000
Less:-Variable selling & administrative exp.			750000
Contribution margin			18500000
Less:- Fixed costs
Manufacturing overhead			8000000
Selling & administrative exp.			4250000
Net Income			6250000

Explanation- Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

=$30+$50+$20 = $100 per unit

2)-

Sims Company
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	75000 units*$350 per unit		26250000
Less:- Cost of goods sold (b)
Opening inventory
Add:- Variable cost of goods manufactured		18000000
Direct materials	100000 units*$30 per unit	3000000
Direct labor	100000 units*$50 per unit	5000000
Variable manufacturing overhead		2000000
Manufacturing overhead		8000000
Variable cost of goods available for sale		18000000
Less:- Closing inventory	30000 units*$180 per unit	5400000	12600000
Gross margin C= a-b			13650000
Less:-Variable selling & administrative exp.			750000
Less:- Fixed costs
Selling & administrative exp.			4250000
Net Income			8650000

Explanation- Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$30+$50+($2000000/100000 units)+ $80

=$30+$50+$20+$80

= $180 per unit

Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$8000000/100000 units =$80 per unit

3)-When units produced are equals to sales units (ie- no opening s or closing inventory) then in both absorption & variable costing method income will be identical.