Question

Check my w 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, 138, eee Tami's Creations, Inc. Income Statement For the Quarter Ended March 31 Sales (28,458 units) Variable expenses: Variable cost of goods sold $ 432,440 Variable selling and administrative 194,882 Contribution margin Fixed expenses: Fixed manufacturing overhead 301, 058 Fixed selling and administrative 232,128 Net operating loss 627,322 512,678 533.178 $ 22,500) 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

Answer 1

Solution 1:

DE Computation of Unit Product Cost - Absorption Costing Particulars Per unit Direct material Direct Labor Variable manufacturing overhead Fixed manufacturing overhead ($301050/ 33450) $7.10 $6.30 $1.80 $9.00 Unit Product Cost $24.20 11 12 13 14 16 17 Tami Creations Full Absorption income statement For the Quarter ended March 31 Particulars Details Sales Cost of Goods Sold: Cost of goods produced (33450*$24.20) $809,490 Add: Opening Inventory $0 Amount $1,138,000 18 20 Less: Ending Inventory (5000*$24.20) $121,000 $688,490 24 Gross Profit Variable Selling & Administrative Expenses Fixed Selling & Administrative Expenses $449,510 $194,882 $232,128 Net Operating Income $22,500 Reconciliation of Net Operating income under absorption costing & Variable Costing - March 31 Particulars | Amount Net Operating Income - Variable Costing $22,500.00 Add : Fixed manufacturing overhead deferred in inventory ($9.00*5000) $45,000.00 Less: Fixed manufacturing overhead released in inventory $0.00 Net Operating Income - Absorption Costing $22,500.00 35 38 39 -208 (2) Sheet331 Sheet202 (3) Sheet333 Sheet153 (34)

Solution 3:

Tami Creations Contribution margin income statement For the Quarter ended June 30 Particulars Per unit Sales (38450 units) $40.00 Amount $1,538,000 Variable Cost: Variable Cost of goods sold Variable Selling and Administrative Expenses $15.20 $6.85 $584,440 $263,382 12 13 $17.95 Contribution Fixed Manufacturing Overhead $690,178 $301,050 15 Fixed Selling & Administrative Expenses $232,128 16 Net Income $156,999 Tami Creations Full Absorption income statement For the Quarter ended Jun 30 Particulars Details Sales (38450 units) $40.00 Cost of Goods Sold: Cost of goods produced (33450*$24.20) $809,490 Add: Opening Inventory (5000*$24.20) $121,000 Less: Ending Inventory $0.00 Amount $1,538,000.00 25 26 27 $930,490 28 Gross Profit $607,510 S6.85 Variable Selling & Administrative Expenses Fixed Selling & Administrative Expenses $263,383 $232,128 Net Operating Income $111,999 Reconciliation of Net Operating income under absorption costing & Variable Costing - For quarter ended Jun 30 Amount $156,999 Particulars Net Operating Income - Variable Costing Add: Fixed manufacturing overhead deferred in inventory Less: Fixed manufacturing overhead released in inventory (5000*$9.00) Net Operating Income - Absorption Costing | $45,000 44 -208 (2) Sheet331 Sheet202 (3) Sheet333 Sheet153 (34)