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

1.

Prepare an income statement for the company using variable costing.

SIMS COMPANY
Variable Costing Income Statement
Net income (loss)

2.

Prepare an income statement for the company using absorption costing.

SIMS COMPANY
Absorption Costing Income Statement
Net income (loss)

3.

Under what circumstance(s) is reported income identical under both absorption costing and variable costing?

	Production is greater than sales and inventory levels decrease
	Production is less than sales and inventory levels decrease
	Production equals sales and there is no beginning finished goods inventory
	Incomes of absorption costing and variable costing will never be identical
	Production is greater than sales and inventory levels increase

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