Exercise 06-3 Income reporting under absorption costing and variable costing LO P2

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	$	20	per unit
Fixed	$	8,400,000	(per year)
Selling and administrative costs for the year
Variable	$	775,000
Fixed	$	4,250,000
Production and sales for the year
Units produced		105,000	units
Units sold		75,000	units
Sales price per unit	$	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.

Complete this question by entering your answers in the tabs below.

• Required 1
• Required 2

Prepare an income statement for the year using variable costing.

SIMS COMPANY
Variable Costing Income Statement
Sales		$26,250,000
Less: Variable costs
Direct materials	$2,625,000
Direct labor	4,125,000
Variable overhead costs	1,500,000
Variable selling and administrative expenses	775,000
Total variable costs		9,025,000
Contribution margin
Less: Fixed expenses
Fixed overhead costs	8,400,000
Fixed selling and administrative costs
Total fixed expenses		8,400,000
Net income (loss)

SIMS COMPANY
Absorption Costing Income Statement
Sales		$26,250,000
Less: Cost of goods sold
Direct materials	$2,625,000
Direct labor	4,125,000
Fixed overhead costs
Variable overhead costs	1,500,000
Cost of goods sold		8,250,000
Gross margin
Selling general and administrative expenses
Fixed selling and administrative costs
Variable selling and administrative expenses
Net income (loss)