Question

Taml 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 (29,000 units) $1,160,000 Variable expenses : Variable cost of goods $435,000 sold Variable selling and 197,200 632,200 administrative Contribution margin 527,800 Fixed expenses: Fixed manufacturing overhead 256,000 Fixed selling and 283,8005 39,800 administrative Net operating loss $ 12.000) 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: 32,000 29,000 Units produced Units sold Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $7.50 $5.80 $1.70 $6.80 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 foss) figures. 3. During the second quarter of operations, the company again produced 32.000 units but sold 35,000 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 Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req 1C Req3A Req 38 Reg 3C Compute the unit product cost under absorption costing. (Round your answer to 2 decimal

Answer 1

1a.

	Quarter 1
Direct Material	$                  7.50
Direct Labor	$                  5.80
Variable Manufacturing Overhead	$                  1.70
Fixed Manufacturing Overhead	$                  8.00	=256000/32000
Total Product Cost	$                23.00

1b.

	Quarter 1
Sales Revenue		$         11,60,000
Cost of Goods Sold
Beginning Inventory	$                       -
Direct Materials	$           2,40,000
Direct Labor	$           1,85,600
Variable Manufacturing Overhead	$              54,400
Fixed Manufacturing Overhead	$           2,56,000
Total Cost of Goods Available	$           7,36,000
Less : Ending Inventory (3000 units)	$              69,000
Cost of Goods Sold		$           6,67,000
Gross Profit		$           4,93,000
Fixed Selling and Administrative Expenses	$           2,83,800
Variable Selling and Administrative Expenses	$           1,97,200
Total Fixed Costs		$           4,81,000
Operating Income / (Loss)		$              12,000

1c.

Reconciliation
	Quarter 1
Income As per Variable Costing	$       -12,000.00
Fixed Costs carried forward for inventory	$        24,000.00	=3000*8
Fixed Costs brought forward for inventory
Income as per absorption costing	$        12,000.00

3a.

	Quarter 2
Sales Revenue		$         14,00,000
Variable Expenses
Variable Cost of Goods Sold	$           5,25,000
Variable Selling and Administrative Expenses	$           2,38,000	$           7,63,000
Contribution Margin		$           6,37,000
Fixed Selling and Administrative Expenses	$           2,83,800
Fixed Manufacturing Overhead	$           2,56,000
Total Fixed Costs		$           5,39,800
Operating Income / (Loss)		$              97,200

3b.

	Quarter 2
Sales Revenue		$         14,00,000
Cost of Goods Sold
Beginning Inventory	$              69,000
Direct Materials	$           2,40,000
Direct Labor	$           1,85,600
Variable Manufacturing Overhead	$              54,400
Fixed Manufacturing Overhead	$           2,56,000
Total Cost of Goods Available	$           8,05,000
Less : Ending Inventory	$                       -
Cost of Goods Sold		$           8,05,000
Gross Profit		$           5,95,000
Fixed Selling and Administrative Expenses	$           2,83,800
Variable Selling and Administrative Expenses	$           2,38,000
Total Fixed Costs		$           5,21,800
Operating Income / (Loss)		$              73,200

3c.

Reconciliation
	Quarter 2
Income As per Variable Costing	$        97,200.00
Fixed Costs carried forward for inventory
Fixed Costs brought forward for inventory	$       -24,000.00	=3000*8
Income as per absorption costing	$        73,200.00