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 Tani's Creations. Inc. Income Statement For the Quarter Ended Warch 31 Sales (28.300 wita) $ 1.132.000 Variable expenses Variable cost of goods sold $ 444.310 Variable selling and adninistrative 195.270 639.580 Contribution margin 492, 420 Fixed expenser Pixed at scturing overbead 250.400 Fixed selling and administrative 254.020 504, 420 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: 31. 300 28. 300 Units produced Units sold Variable costs per unit: Direct materials Direct labor Variable facturing overhead Variable selling and diniatrative $ 1.40 $6.80 $ 1.50 $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 31,300 units but sold 34,300 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.

Answer 1

	Compute Unit Product Cost Under Absorption Costing
(1)(a)	Particulars	Absorption	Variable
	Direct Materials	$7.40	$7.40
	Direct Labour	$6.80	$6.80
	Variable Manufacturing Overhead	$1.50	$1.50
	Fixed Manufacturing overhead	$8.00	-
	Unit Product Cost	$23.70	$15.70
					Qtr - 1
(1)(b)	Absorption Costing Income Statement	28,300 Units Sold
	Particulars	Per Unit			Amount ($)
	Sales	40.00	[28,300 x 40.00]		1132000
	Less: Cost of Goods Sold :-
	Opening Inventory		-	-
	Add: Variable cost of goods sold	15.70	[31,300 x 15.70]	491,410
	- Direct Materials           = 7.40
	- Direct Labour             = 6.80
	- Variable Overhead    = 1.50
	Fixed cost of goods sold:	8.00	[31,300 x 8.00]	250,400
	- Manufacturing OH         = 8.00
	Less: Closing Inventory		[3,000 x 23.70]	(71,100)	670710
	Gross Profit				461290
	Less: Selling & Admin Exp.
	Variable selling & admin exp.	6.90	[28,300 x 6.90]		(195270)
	Fixed Selling & administrative exp.			(254020)
	Net Operating Income / (Loss)				12000
					Year-1
(1)(c)	Reconciliation Statement	Amount ($)
	Net profit as per Absorption Costing	12000
	Add: Opening Stock over Absorbed	-
	[-]
	Less: Closing Stock over absorbed	24000
	[71,100 - 47,100]
	Net profit as per Variable Costing	-12000
(3)(a)					Qtr - 2
	Varibale Costing Income Statement	34,300 Units Sold
	Particulars	Per Unit			Amount ($)
	Sales	40.00	[34,300 x 40.00]		1372000
	Less: Cost of Goods Sold :-
	Opening Inventory		[ 3 ,000 x 15.70]	47,100
	Add: Variable cost of goods sold	15.70	[31,300 x 15.70]	491,410
	- Direct Materials           = 7.40
	- Direct Labour             = 6.80
	- Variable Overhead    = 1.50
	Variable selling & admin exp.	6.90	[34,300 x 6.90]	236,670
	Less: Closing Inventory		-	-	775180
	Contribution Margin				596820
	Less: Fixed costs
	Fixed Manufacturing overhead				(250400)
	Fiexd Selling & administrative exp.			(254020)
	Net Operating Income / (Loss)				92400
					Qtr - 2
(3)(b)	Absorption Costing Income Statement	34,300 Units Sold
	Particulars	Per Unit			Amount ($)
	Sales	40.00	[34,300 x 40.00]		1372000
	Less: Cost of Goods Sold :-		Add a comment Know the answer? Add Answer to: Tami Tyler opened Tami's Creations, Inc., a small manufacturing company, at the beginning of the year.... Your Answer: Post as a guest Your Name: What's your source? Earn Coins Coins can be redeemed for fabulous gifts. Log In Sign Up Post as anonymous Post Your Answer Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free. Similar Homework Help Questions Tami Tyler opened Tami's Creations, Inc., a small manufacturing company, at the beginning of the year.... 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. 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