Question

we coling POMLEMS OLDU Tudor opened Timis pengcome 5-14 Abwertion and Variante Costing Product Cat Saleh. LOL, LO2 Crews , Inc. amall manufacturing com b i quarter of people aceste sinon personale e following income statement for the fir s t justempleted a course in managerial accounting State Getting the company through who Ta's Creations, Inc. come Statement For the Outer Ended March 31 $1.120.000 Sales 128.000 units) Variable expenses Variable cost of goods sold Variable selling and administrative Contribution margin Fixed expenses Fixed manufacturing overhead Fedseling and administrative Net operating loss.... 5462 000 168.000 630.000 490,000 300,000 200,000 500.000 10,000 $ Tik is discouraged over the loss shown for the quarter to be she had planned the statement as support for a bank loan. Another friend, CPA, insists that the y should sorption costing rather than variable costing and argues that if shopion cost had been be mpany would probably have reported at least some profit for the quartier At this point, Ms. Tyler is manufacturing only one product, a swimsuit Production and cost relating to the swimsuit for the first quarter follow Units produced ... Units sold.. 30.000 28.000 Variable costs per unit: Direct materials ..... Direct labor...... Variable manufacturing overhead. ......... Variable selling and administrative.... $3.50 $12.00 $1.00 $6.00 Required 1. Complete the following: 2. Compute the unit product cost under absorption costing. 0. Redo the company's income statement for the quarter using absorption costing c. Reconcile the variable and absorption costing net operating income (loss) figures. Was the CPA correct in suggesting that the company really earned a "profit for the quarter? Explain. uring the second quarter of operations, the company again produced 30,000 units but sold $2,000 units. (Assume no change in total fixed costs.) Prepare a contribution format income statement for the quarter using variable costing. Prepare an income statement for the quarter using absorption costing. Reconcile the variable costing and absorption costing net operating incomes.

Answer 1

1a.

Product Cost
Direct Materials	$        105,000.00	=30000*3.5
Direct Labor	$        360,000.00	=30000*12
Variable Manufacturing Overhead	$          30,000.00	=30000*1
Fixed Manufacturing Overhead	$        300,000.00
Total Product Cost	$        795,000.00
Units Produced	$          30,000.00
Product Cost per units	$                  26.50

1b.

Income Statement
Sales Revenue	$    1,120,000.00
Cost of Goods Sold	$        742,000.00	=28000*26.5
Gross Profit	$        378,000.00
Selling and Administrative Expenses
Variable	$        168,000.00
Fixed	$        200,000.00
Total Selling and Administrative Expenses	$        368,000.00
Net Income	$          10,000.00

1c.

Reconciliation
Income as per Variable Costing	$        -10,000.00
Fixed Overhead carried forward	$          20,000.00	=300000/30000*2000
Income as per Absorption Costing	$          10,000.00

2.
Yes CPA is correct that company has earned profit. It is clearly evident from Income statement as per absorption costing. Since fixed manufacturing overhead is incurred for production of goods, therefore it should also be carried forward in ending inventory.

3a.

Income Statement (Variable Costing)
Sales Revenue	$    1,280,000.00	=32000*40
Variable Expenses
Cost of Goods Sold	$        528,000.00	=32000*16.5
Selling and Administrative Expenses	$        192,000.00	=32000*6
Variable Expenses	$        720,000.00
Contribution Margin	$        560,000.00
Fixed Expenses
Manufacturing Overhead	$        300,000.00
Selling and Administrative Expenses	$        200,000.00
Total Fixed Expenses	$        500,000.00
Net Income	$          60,000.00

3b.

Income Statement (Variable Costing)
Sales Revenue	$    1,280,000.00	=32000*40
Variable Expenses
Cost of Goods Sold	$        528,000.00	=32000*16.5
Selling and Administrative Expenses	$        192,000.00	=32000*6
Variable Expenses	$        720,000.00
Contribution Margin	$        560,000.00
Fixed Expenses
Manufacturing Overhead	$        300,000.00
Selling and Administrative Expenses	$        200,000.00
Total Fixed Expenses	$        500,000.00
Net Income	$          60,000.00

3c.

Reconciliation
Income as per Variable Costing	$          60,000.00
Less : Fixed Overhead brought forward	$          20,000.00	=300000/30000*2000
Income as per Absorption Costing	$          40,000.00