Ask Question
5 November, 04:10

Sims Company, a manufacturer of tablet computers, began operations on January 1, 2019. Its cost and sales information for this year follows. Manufacturing costs Direct materials $ 35 per unit Direct labor $ 55 per unit Overhead costs Variable $ 40 per unit Fixed $ 6,300,000 (per year) Selling and administrative costs for the year Variable $ 700,000 Fixed $ 4,250,000 Production and sales for the year Units produced 105,000 units Units sold 75,000 units Sales price per unit $ 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.

+2
Answers (1)
  1. 5 November, 05:41
    0
    Instructions are below.

    Explanation:

    Giving the following information:

    Manufacturing costs:

    Direct materials = $35 per unit

    Direct labor = $55 per unit

    Overhead costs

    Variable = $40 per unit

    Fixed = $6,300,000

    Selling and administrative costs for the year:

    Variable $700,000

    Fixed $4,250,000

    Units produced = 105,000

    Units sold = 75,000 units

    Sales price per unit $ 360 per unit

    The difference between the absorption costing and variable costing method is that the first one includes the fixed overhead in the product cost.

    1) Variable costing:

    Unitary variable cost = direct material + direct labor + variable overhead

    Unitary variable cost = 35 + 55 + 40 = 130

    Sales = 75,000*360 = 27,000,000

    Variable costs = (75,000*130) + 700,000 = (10,450,000)

    Contribution margin = 16,550,000

    Fixed overhead = (6,300,000)

    Fixed Selling and administrative costs = (4,250,000)

    Net operating income = 4,250,000

    2) Absorption costing:

    Unitary product cost = direct material + direct labor + total unitary overhead

    Unitary fixed overhead = 6,300,000/105,000 = 60

    Unitary product cost = 130 + 60 = 190

    Sales = 75,000*360 = 27,000,000

    Cost of goods sold = (75,000*190) = (14,250,000)

    Gross profit = 12,750,000

    Total Selling and administrative costs = (4,950,000)

    Net operating income = 7,800,000
Know the Answer?