Eunice Wong opened Eunice's Creations Company, a small manufacturing company, at the beginning of the year. The following income statement for the first quarter was prepared by a friend of Eunice, who has just completed a course in managerial accounting.

Eunice's Creations Company

Income Statement

For the Quarter Ended March 31, 2020

$ $

Sales (14,000 units) 1,120,000

Variable expenses

Cost of goods sold 462,000

Selling and administrative 168,000 630,000

Contribution margin 490,000

Fixed expenses

Manufacturing overhead 360,000

Selling and administrative 200,000 560,000

Net operating loss 70,000

Eunice 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 use absorption costing rather than variable costing. He also argues that if absorption costing had been used, the company would probably have reported at least some profit for the quarter.

At this point, Eunice is manufacturing only one product, an electric fan. The production and cost data relating to the electric fan for the first quarter are as follows:

Units produced 18,000

Units sold 14,000

Variable costs per unit $

Direct materials 7

Direct labor 24

Variable manufacturing overhead 2

Variable selling and administrative 12

Required:

a) Compute the unit product cost and the ending balance of finished goods under absorption costing method.

b) Prepare the company's income statement for the quarter using absorption costing method.

c) Reconcile net operating income (loss) figures from variable costing method to absorption costing method.

d) Was the CPA correct in claiming that the company really earned a "profit" for the quarter? Explain.