Sims Company, a manufacturer of tablet computers, began operations on January 1, 2015. Its cost and sales information for this year follows. Manufacturing costs Direct materials $ 40 per unit Direct labor $ 60 per unit Overhead costs for the year Variable overhead $ 3,000,000 Fixed overhead $ 7,000,000 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 Sales price per unit $ 350 per unit 1. Prepare an income statement for the year using variable costing.

Instructions are below.

Explanation:

Giving the following information:

Under the variable costing method, the unit product cost is calculated using the direct material, direct labor, and unitary variable overhead.

First, we need to calculate the unitary variable overhead and unitary selling and administrative expense:

Unitary variable overhead = 3,000,000/100,000 = $30

Unitary variable selling and administrative expense = 770,000/70,000 = $11

Total Unitary variable cost = 40 + 60 + 30 + 11 = $141

Now, the income statement:

Sales = 70,000*350 = 24,500,000

Total variable cost = (70,000*141) = (9,870,000)

Contribution margin = 14,630,000

Fixed overhead = (7,000,000)

Fixed selling and administrative = (4,250,000)

Net operating income = 3,380,000