Sims Company, a manufacturer of in-home decorative fountains, began operations on September 1 of the current year. Its cost and sales information for this year follows.
Production costs
Direct materials $30 per unit
Direct labor $50 per unit
Overhead costs for the year
Variable overhead $4,200,000
Fixed overhead $6,300,000
Nonproduction costs for the year
Variable selling and administrative $700,000
Fixed selling and administrative $5,000,000
Production and sales for the year
Units produced 105,000 units
Units sold 75,000 units
Sales price per unit $350 per unit
Required:
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 and variable costing?
a. Production is greater than sales and inventory levels decrease
b. Production is less than sales and inventory levels decrease
c. Production equals sales and there is no beginning finished goods inventory
d. Incomes of absorption costing and variable costing will never be identical
e. Production is greater than sales and inventory levels increase
Answers: 3
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