Question

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 31,500 units but sold 34,500 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.

Tam Tyler opened Tom Cretions, Inc. a small manufacturing company at the beginning of the year Getting the company to u r of tons placed a considerable r 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, Tania Creations, Inc. Income Statement Tor the Quarter Ended March 31 sales (28,500 units) $1,140,000 Variable expenses Variable cost of goods $498,750 sold Variable selling and administrative 193,800 692,550 Contribution margin 467.650 Fixed expenses Tixed manufacturing overhead 283,500 Fixed selling and 460,950 administrative 177.450 Het operating loss $ 13.500) 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 31,500 20,500 Units produced Units sold Variable costa per units Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $7.50 $8.00 $2.00 $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 fossures 3. During the second quarter of operations, the company again produced 31500 units but sold 34.500 units. (Assume no change in total fixed costs) a. What is the company's variable costing net operating Income poss) for the second quarter? b. What is the company's absorption costing net operating income oss) 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 18 Reg 1C Reg 3A Reg 33 Reg 3C Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.) Unit product

Answer 1

Ans.

1A

The unit product cost under absorption costing.

Direct Material	$        7.50
Direct Labor	$        8.00
Variable Manufacturing Overhead	$        2.00
Fixed Manufacturing Overhead ($283,500 / 31,500)	$        9.00
Absorption Costing unit product cost	$     26.50

1B
The absorption costing Income Statement

Tami's Creation Inc
Absorption Costing Income Statement
	Total
Sales (28,500 * $ 40)	$ 1,140,000.00
Cost of Goods Sold (28,500 * $ 26.5)	$      755,250.00
Gross Margin	$      384,750.00
Selling and Administrative Expenses [$ 177,450 + (28,500 * $ 6.8)]	$      371,250.00
Net Operating Income	$        13,500.00

1C

Reconciliation of the variable and absorption costing net operating income (loss) as

Variable Costing net operating income (loss)	$      (13,500.00)
Add : Fixed Manufacturing Overhead cost deferred in inventory under absorption costing (3,000 units * $9)	$        27,000.00
Absorption Costing net operating income (loss)	$        13,500.00

3.

Working Note

	March	April
Beginning Inventory (units)	-	3,000.00
Units Produced during the month	31,500.00	31,500.00
Units Sold during the month	28,500.00	34,500.00
Ending Inventory (units)	3,000.00	-

3A

Variable Costing Income Statement

Tami's Creation Inc
Variable Costing Income Statement
Sales (34,500 * $ 40)		$ 1,380,000.00
Variable Expenses:
Variable Cost of Goods Sold (34,500 * $ 17.5)	$ 603,750.00
Variable Selling and Admimistrative (34,500 * 6.8)	$ 234,600.00	$      838,350.00
Contribution Margin		$      541,650.00
Fixed Manufacturing Overhead	$ 283,500.00
Fixed Selling and Admimistrative	$ 177,450.00	$      460,950.00
Net Operating Income		$        80,700.00

3B

Absorption Costing Income Statement

Tami's Creation Inc
Absorption Costing Income Statement
	Total
Sales (34,500 * $ 40)	$ 1,380,000.00
Cost of Goods Sold (34,500 * $ 26.5)	$      914,250.00
Gross Margin	$      465,750.00
Selling and Administrative Expenses [$ 177,450 + (34,500 * $ 6.8)]	$      412,050.00
Net Operating Income	$        53,700.00

3C

Reconciliation of the variable and absorption costing net operating income as

Variable Costing net operating income	$        80,700.00
Less : Fixed Manufacturing Overhead cost released from inventory under absorption costing (3,000 units * 9)	$        27,000.00
Absorption Costing net operating income	$        53,700.00