Saved Hel Sims Company, a manufacturer of tablet computers, began operations on
ID: 2545166 • Letter: S
Question
Saved Hel Sims Company, a manufacturer of tablet computers, began operations on January 1, 2017. Its cost and sales information for this year follows. Manufacturing costs Direct materials Direct labor Overhead costs for the year 40 per unit 60 per unit $2,100,000 $8,400,000 Variable overhead Pixed overhead Selling and administrative costs for the year Variable Pixed $700,000 4,250,000 Production and sales for the year Units produced Units sold Sales price per unit 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. 3. Under what circumstance(s) is reported income identical under both absorption costing and variable costing?Explanation / Answer
1.
Prepare an income statement for the year using variable costing.
SIMS COMPANY
Variable Costing Income Statement
Sales
$27,000,000
Less: Variable costs
Direct materials
3,000,000
Direct labor
4,500,000
Variable overhead costs
15,00,000
Variable selling and administrative expenses
700,000
Total variable costs
9,700,000
Contribution margin
$17,300,000
Less: Fixed expenses
Fixed selling and administrative costs
4,250,000
Fixed overhead costs
8,400,000
Total fixed expenses
12,650,000
Net income (loss)
$4,650,000
2.
Prepare an income statement for the year using absorption costing.
SIMS COMPANY
Absorption Costing Income Statement
Sales
$27,000,000
Less: Cost of goods sold
Direct materials
3,000,000
Direct labor
4,500,000
Variable overhead costs
15,00,000
Fixed overhead costs
6,000,000
Cost of goods sold
15,000,000
Gross margin
12,000,000
Selling general and administrative expenses
Fixed selling and administrative costs
4,250,000
Variable selling and administrative expenses
700,000
Total selling, general and administrative expenses
7,050,000
Net income (loss)
$4,950,000
3.
Under what circumstance(s) is reported income identical under both absorption costing and variable costing?
Production equals sales and there is no beginning finished goods inventory
1.
Prepare an income statement for the year using variable costing.
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