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Jordan Bridgton opened Novelty Creations, Inc., a small manufacturing company, at the beginning of 2022. Getting the company through its first two-quarters of operations placed
Jordan Bridgton opened Novelty Creations, Inc., a small manufacturing company, at the beginning of 2022. Getting the company through its first two-quarters of operations placed considerable stress on Ms. Bridgton's personal finances. The following income statement was prepared for the second quarter by a friend who has just completed a course in managerial accounting at a local community college. Ms. Bridgton was very unhappy 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 quarter. At this point, Ms. Bridgton is manufacturing only one product-a designer jumpsuit. Production and cost data relating to the jumpsuit for the above period follow: 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. 2. Was the CPA correct in suggesting that the company really earned a "profit" for the quarter? Explain. 3. During the third quarter of operations, the company again produced 30,000 units but sold 32,000 units. (Assume no change in total fixed costs.) a. What is the company's variable costing net operating income (loss) for the third quarter? b. What is the company's absorption costing net operating income (loss) for the third quarter? c. Reconcile the variable costing and absorption costing net operating incomes for the third quarter
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