Homework × Secure https://newconnect.mheducation.com/flow/connect.html 06 Homewo
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Homework × Secure https://newconnect.mheducation.com/flow/connect.html 06 Homework Sims Company, a manufacturer of tablet computers, began operations on January 1, 2017 ts cost and sales information for this follows Manufacturing costs Direct materials Direct labor Overhead costs for the year 40 per unit 60 per unit $3,008,00e $7,000,000 Variable overhead Fixed overheed Selling and adeinistrat ive costs for the year s770,000 $4,258,8o Variable Product Son and sales for the year 100,000 units 70,800 wnits Units sold Sales price per unit 350 per unit 1. Prepare an income statement for the year using variable costing 2. Prepare an income stetement for the yeor using absorption costing nces 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 Net income (loss) Required 2>Explanation / Answer
Part 1
SIMS COMPANY
Variable Costing Income Statement
Sales
$ 24,500,000.00
Less: Variable Cost
Direct Material
$ 2,800,000.00
Direct Labor
$ 4,200,000.00
Variable Overheads
$ 3,000,000.00
Variable selling and Administrative expenses
$ 770,000.00
Total Variable cost
$ 10,770,000.00
Contribution Margin
$ 13,730,000.00
Less: Fixed Cost
Fixed manufacturing Overheads
$ 7,000,000.00
Fixed Selling and Administrative Expenses
$ 4,250,000.00
Total Fixed cost
$ 11,250,000.00
Net Income
$ 2,480,000.00
Part 2
SIMS COMPANY
Absorption Costing Income Statement
Sales
$ 24,500,000.00
Less: Cost of goods sold
$ 14,900,000.00
Gross Profit
$ 9,600,000.00
Operating expenses
Selling and administrative cost
$ 5,020,000.00
Net Income
$ 4,580,000.00
Working note 1 Statement of cost of goods sold
Units sold
70000
Material cost
$ 2,800,000.00
Direct labor
$ 4,200,000.00
Variable manufacturing Overheads
$ 3,000,000.00
Fixed Manufacturing Overheads(7000000/100000*70000)
$ 4,900,000.00
$ 14,900,000.00
Working note 2 Closing inventory as per Absorption costing
Units
30000
Material cost
$ 1,200,000.00
Direct labor
$ 1,800,000.00
Fixed manufacturing overheads assigned (7000000/100000*30000)
$ 210,000.00
$ 3,240,000.00
The difference in profits as per absorption and variable costing is due to fixed manufacturing overheads assigned to closing inventory. Since under variable costing fixed overheads are considered period cost no overhead is assigned to closing inventory the income under variable costing is lower. The profit under absorption is always higher when there is closing inventory left.
The difference of profit between both methods is equal to fixed manufacturing overheads assigned to closing inventory under Absorption costing.
Part 3
When there is no opening or closing inventory then the profits as per variable and absorption costing are same.
This is because when there is no inventory the fixed manufacturing overheads assigned under both methods are same.
SIMS COMPANY
Variable Costing Income Statement
Sales
$ 24,500,000.00
Less: Variable Cost
Direct Material
$ 2,800,000.00
Direct Labor
$ 4,200,000.00
Variable Overheads
$ 3,000,000.00
Variable selling and Administrative expenses
$ 770,000.00
Total Variable cost
$ 10,770,000.00
Contribution Margin
$ 13,730,000.00
Less: Fixed Cost
Fixed manufacturing Overheads
$ 7,000,000.00
Fixed Selling and Administrative Expenses
$ 4,250,000.00
Total Fixed cost
$ 11,250,000.00
Net Income
$ 2,480,000.00
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