Exercise 19-3 Income reporting under absorption costing and variable costing LO P2

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	$	35	per unit
Direct labor	$	55	per unit
Overhead costs for the year
Variable overhead	$	2,100,000
Fixed overhead	$	8,400,000
Selling and administrative costs for the year
Variable	$	725,000
Fixed	$	4,500,000
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. 3. Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

SIMS COMPANY
Variable Costing Income Statement
Net income (loss)

SIMS COMPANY
Absorption Costing Income Statement
Net income (loss)

Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

Reported income identical under both