Answer:
Sims Company
Income Statements Variable Costing Absorption Costing
Sales revenue $24,500,000 $24,500,000
Cost of goods sold:
Variable cost of manufacturing 9,100,000 9,100,000
Variable cost of selling and admin. 770,000 0
Fixed manufacturing cost 0 4,900,000
Total cost of goods sold $9,870,000 $14,000,000
Contribution margin $14,630,000 0
Gross profit 0 $10,500,000
Fixed /Period costs:
Fixed manufacturing cost $7,000,000 0
Selling and administrative expenses:
Variable $ 770,000
Fixed 4,250,000 4,250,000
Total period/fixed costs $11,250,000 $5,027,000
Net operating income $3,380,000 $5,473,000
Explanation:
a) Data and Calculations:
Manufacturing costs
Direct materials $ 40 per unit
Direct labor $ 60 per unit
Overhead costs
Variable $ 30 per unit
Total variable manufacturing cost per unit = $130
Fixed $ 7,000,000 (per year)
Selling and administrative costs for the year
Variable $ 770,000
Fixed $ 4,250,000
Production and sales for the year
Units produced 100,000 units
Units sold 70,000 units
Ending inventory = 30,000 units
Sales price per unit $ 350 per unit
