Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.   Tami’s Creations, Inc. Income Statement For the Quarter Ended March 31 Sales (28,050 units)       $ 1,122,000   Variable expenses:             Variable cost of goods sold $ 462,825         Variable selling and administrative   193,545     656,370   Contribution margin         465,630   Fixed expenses:             Fixed manufacturing overhead   297,450         Fixed selling and administrative   190,680     488,130   Net operating loss       $ ( 22,500)       Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.   At this point, Ms. Tyler is manufacturing only one product—a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:         Units produced 33,050 Units sold 28,050 Variable costs per unit:   Direct materials   $ 7.40 Direct labor   $ 7.50 Variable manufacturing overhead   $ 1.60 Variable selling and administrative   $ 6.90     Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. b. What is the company’s absorption costing net operating income (loss) for the quarter? c. Reconcile the variable and absorption costing net operating income (loss) figures. 3. During the second quarter of operations, the company again produced 33,050 units but sold 38,050 units. (Assume no change in total fixed costs.) a. What is the company’s variable costing net operating income (loss) for the second quarter? b. What is the company’s absorption costing net operating income (loss) for the second quarter? c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler’s personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University.

 

Tami’s Creations, Inc.

Income Statement

For the Quarter Ended March 31

Sales (28,050 units)       $ 1,122,000  
Variable expenses:            
Variable cost of goods sold $ 462,825        
Variable selling and administrative   193,545     656,370  
Contribution margin         465,630  
Fixed expenses:            
Fixed manufacturing overhead   297,450        
Fixed selling and administrative   190,680     488,130  
Net operating loss       $ ( 22,500)  
 

 

Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, a CPA, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company probably would have reported at least some profit for the quarter.

 

At this point, Ms. Tyler is manufacturing only one product—a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

 

     
Units produced 33,050
Units sold 28,050
Variable costs per unit:  
Direct materials   $ 7.40
Direct labor   $ 7.50
Variable manufacturing overhead   $ 1.60
Variable selling and administrative   $ 6.90
 

 

Required:

1. Complete the following:

a. Compute the unit product cost under absorption costing.

b. What is the company’s absorption costing net operating income (loss) for the quarter?

c. Reconcile the variable and absorption costing net operating income (loss) figures.

3. During the second quarter of operations, the company again produced 33,050 units but sold 38,050 units. (Assume no change in total fixed costs.)

a. What is the company’s variable costing net operating income (loss) for the second quarter?

b. What is the company’s absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

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