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’s Creations, Inc.

Income Statement

For the Quarter Ended March 31

Sales (28,500 units)				$	1,140,000
Variable expenses:
Variable cost of goods sold	$	438,900
Variable selling and administrative		185,250			624,150
Contribution margin					515,850
Fixed expenses:
Fixed manufacturing overhead		252,000
Fixed selling and administrative		275,850			527,850
Net operating loss				$	( 12,000)

Units produced	31,500
Units sold	28,500
Variable costs per unit:
Direct materials		$	7.10
Direct labor		$	6.40
Variable manufacturing overhead		$	1.90
Variable selling and administrative		$	6.50

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 31,500 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.

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