Question

Just 3a 3b & 3c

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 $461,290 Variable selling and 192,440 administrative Contribution margin Fixed expenses: Fixed manufacturing overhead 281,700 Fixed selling and administrative 219,070 Net operating loss 653,730 478,270 491,770 $( 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

Answer 1

3a.

Income Statement
Sales Revenue		$       1,372,000
Variable Cost of Goods Sold
Beginning Inventory	$          48,900		=3000*16.3
Direct Material	$       234,750		=31300*7.5
Direct Labor	$       219,100		=31300*7
Variable Manufacturing Overhead	$          56,340		=31300*1.8
Total Variable Cost of Goods Sold		$           559,090
Gross Contribution Margin		$           812,910
Variable Selling and administrative exp		$           233,240
Net Contribution Margin		$           579,670
Less Fixed Expenses
Fixed manufacturing Overhead	$       281,700
Fixed Selling and administrative	$       210,070
Total Fixed Expenses		$           491,770
Net Operating Income		$             87,900

3b.

Income Statement
Sales Revenue		$       1,372,000
Cost of Goods Sold
Beginning Inventory	$          75,900		=3000*16.3
Direct Material	$       234,750		=31300*7.5
Direct Labor	$       219,100		=31300*7
Variable Manufacturing Overhead	$          56,340		=31300*1.8
Fixed manufacturing Overhead	$       281,700
Total Cost of Goods Sold		$           867,790
Gross Profit		$           504,210
Less Operating Expenses
Variable Selling and administrative exp	$       233,240		=34300*6.8
Fixed Selling and administrative	$       210,070
Total Operating Expenses		$           443,310
Net Operating Income		$             60,900

3c.

Income as per Variable Costing	$          87,900
Fixed Overhead Brought forward	$        -27,000	=48900-75900
Income as per Absorption Costing	$          60,900