### Income Statement Preparation Using Absorption CostingBelow is an example of how to prepare an income statement for the year using absorption costing, as demonstrated by SIMS Company.#### SIMS COMPANY**Absorption Costing Income Statement**- **Sales:** $28,800,000- **Less: Cost of Goods Sold** - **Direct materials:** $3,000,000 - **(Direct labor and other costs not provided)****Total Cost of Goods Sold:** $3,000,000**Net income (loss):** (To be determined once all costs are accounted for)### Detailed ExplanationThe provided image includes an incomplete income statement from SIMS Company using absorption costing. Absorption costing, also known as full costing, is a method where all manufacturing costs, both fixed and variable, are allocated to products.**Key Components:**1. **Sales:** - This is the total revenue earned from the sale of goods or services. In this example, sales amount to $28,800,000.2. **Cost of Goods Sold (COGS):** - COGS represents the direct costs attributable to the production of goods sold. This includes direct materials, direct labor, and manufacturing overheads. - Only direct materials amounting to $3,000,000 are listed in the image. Other costs like direct labor and manufacturing overheads need to be included to complete the calculation.3. **Net Income (Loss):** - The net income or loss is determined by subtracting the total cost of goods sold and other expenses from the total sales revenue.In an educational setting, this forms the basis for teaching how to construct an income statement using absorption costing. Further details on direct labor and other manufacturing overheads should be included to calculate the final net income or loss accurately. ## Sims Company Cost and Sales Information (2019)Sims Company, a manufacturer of tablet computers, began operations on January 1, 2019. Here is the cost and sales information for the year:### Manufacturing Costs- **Direct materials**: $30 per unit- **Direct labor**: $50 per unit- **Overhead costs**: - **Variable**: $40 per unit - **Fixed**: $6,600,000 (per year)### Selling and Administrative Costs for the Year- **Variable**: $775,000- **Fixed**: $5,000,000### Production and Sales for the Year- **Units produced**: 110,000 units- **Units sold**: 80,000 units- **Sales price per unit**: $360 per unit### Questions1. **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.*#### Tabs:- **Required 1**- **Required 2**(Note: No graphs or diagrams are present in this image.)This cost and sales information is crucial for understanding the performance and financial status of Sims Company during its first year of operations. The preparation of income statements using both variable costing and absorption costing will provide a comprehensive analysis of profitability and cost management.

An income statement is a statement that is a part of financial statements which is prepared to…

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 Direct labor 30 per unit $ 50 per unit Overhead costs Variable $ Fixed 40 per unit $6,600,000 (per year). Selling and administrative costs for the year Variable $ 775,000 Fixed $5,000,000 Production and sales for the year Units produced 110,000 units Units sold Sales price per unit 80,000 units 360 per unit $ 1. Prepare an income statement for the year using variable costing. 2. Prepare an income statement for the year using absorption costing.

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 Direct labor 30 per unit $ 50 per unit Overhead costs Variable $ Fixed 40 per unit $6,600,000 (per year). Selling and administrative costs for the year Variable $ 775,000 Fixed $5,000,000 Production and sales for the year Units produced 110,000 units Units sold Sales price per unit 80,000 units 360 per unit $ 1. Prepare an income statement for the year using variable costing. 2. Prepare an income statement for the year using absorption costing.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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