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Jasmin Consumer Goods Trading was recently established as a start-up business. At this point, Jasmin is manufacturing only one product. Production and cost data relating

Jasmin Consumer Goods Trading was recently established as a start-up business. At this point, Jasmin is manufacturing only one product. Production and cost data relating to the product for the first quarter follow:

SP

42.00

Units produced

30,000.00

Units sold

28,000.00

Variable Costs

Direct Materials

105,000.00

Direct Labor

360,000.00

Variable Manufacturing Overhead

30,000.00

Variable Selling and Administrative

168,000.00

Fixed Manufacturing

360,000.00

Fixed Selling and Administrative

200,000.00

Getting the company through its first quarter of operations placed a considerable strain on Jasmin's personal finances. Jasmin then asked her friend Vanessa who has just completed a course in managerial accounting at a Private University to prepare the company's first quarter income statement. Jasmin is discouraged upon seeing the Variable Costing Income Statement for the quarter, particularly because she had planned to use the statement as support for a bank loan. Another friend, Julie, insists that the company should be using absorption costing rather than variable costing and argues that if absorption costing had been used the company would probably have reported at least some profit for the quarter.

Required:

  1. Show the company's Variable Costing Income Statement and explain why was Jasmin disappointed upon seeing the Income Statement prepared by Vanessa?
  2. Redo the company's income statement for the quarter using absorption costing. Do you agree with Julie's Statement?
  3. Reconcile the variable and absorption costing net operating income (loss) figures.
  4. Was Julie correct in suggesting that the company really earned a "profit" for the quarter? Explain.
  5. During the second quarter of operations, the company again produced 30,000 units but sold 32,000 units. (Assume no change in total fixed costs.) a. Prepare a contribution format income statement for the quarter using variable costing. b. Prepare an income statement for the quarter using absorption costing. c. Reconcile the variable costing and absorption costing net operating incomes

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