Question

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 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. $ 1,132,000 Tami's Creations, Inc. Income Statement For the Quarter Ended March 31 Sales (28,300 units) Variable expenses: Variable cost of goods sold $ 430,160 Variable selling and administrative 195, 270 Contribution margin Fixed expenses: Fixed manufacturing overhead 266,400 Fixed selling and administrative 260,170 Net operating loss 625, 430 506, 570 526,570 $ ( 20,000)

Answer 1

1a). Calculation of Unit cost Under Absorption Costing First Quarter Direct Material 7.20 Direct Labour 6.10 Variable Manufacturing Overhead 1.90 Fixed Manufacturing Over head 366400/33300 8.00 Unit Product cost 23.20 1B). Income Statement Under Absorption Costing First Quarter 1132000 Sales (28300*40) Cost of Goods Sold(28300*23.20) Gross Margin Selling and Administrative Overheads Net Operating Income(loss) 656560 475440 455440 20000

1.C). Reconcile the variable costing and absorption costing Net income First Quarter Variable Costing Net Operating Income -20,000 Add Fixed Manufacturing Overheads cost Deferred 40,000 in inventory Absorption Costing Net Operating Income 20,000 Working Note-1 First Quarter Units Produced 33300 Units Sold 28300 Difference in units =( Produces - Sold) 5000 Difference in manufacturing overheads = 40,000 ( Difference in units * fixed manufacturing overheads per unit)

Calculation of Unit cost Under Variable Costing Second Quarter 1532000 Direct Material 7.2 Direct Labour 6.1 Variable Manufacturing Overhead 1.9 Unit Cost 15.20 2.A). Income Statement Under Variable Costing Sales (38300*40) Variable Expense Cost of Goods Sold (38300*15.20) 582160 Varaible Selling and Adminisatrative 264270 Total Varible Expenses Contribution Magin Fixed Expenses Fixed mufacturing Overheads 266400 Fixed Sellingand Administrative Expenses 260170 Total fixed Expenses Net Operating Income 846430 685570 526570 159000

Calculation of Unit cost Under Absorption Costing second Quarter Direct Material 7.2 Direct Labour 6.1 Variable Manufacturing Overhead 1.9 Fixed Manufacturing Over head 366400/33300 Unit Product cost 23.2 8.0 2B). Income Statement Under Absorption Costing Sales (38300*40) Cost of Goods Sold(38300*23.20) Gross Margin Selling and Administrative Overheads Net Operating Income(loss) second Quarter 1532000 888560 643440 524440 119000

Working Note - 1 Units Produced Units Sold Difference in units =( Produces -Sold) Difference in manufacturing overheads = (Difference in units * fixed manufacturing overheads per unit) second Quarter 33300 38300 -5000 -40,000