Managerial Accounting

2. Amanda opened Amanda's Creation, Inc. a small manufacturing company, at the beginning of the second quarter. Getting the company through its second quarter of operation placed a considerable strain on Amanda's personal finances. The following income statement for the second quarter was prepared by a friend who has just completed a course in managerial accounting at Membele University. Amanda Creation, Inc Income Statement under Contribution Format For the Quarter Ended, June 30. Sales (14,000 units) $ 2,240,000 Variable expenses: Variable Cost of Goods Sold $ 924,000 Variable Selling and Administrative $ 336.000# 5 1 360.000- Contribution margin $ 980,000 Fixed expenses: Fined manufacturing overhead. $ 600,000 Food Selling and Administrative $ 400.000 $ 1.000 000- NET OPERATING LOSS (520,000) Ma. Amanda is discouraged over the loss shown for the quarter, particularly because she had planned to the statement is 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 would probably have reported at least some profit for the quarter. At this point, Ms. Amanda is manufacturing only one product, a swimsuit. Production and cost data relating to the swimsuit for the second quarter follow. Units produced. 15,000 Units sold 14,000 Variable cost per unit: Direct materials. $ 26 Direct labor.. 30 Variable manufacturing overhead. $ 10 Variable selling and administrative .. 24 Instruction: 1. Compute the unit product cost under absorption costing! (5%) b. Redo the company's income statement for the quarter using absorption costing! (10%] c. Reconcile the variable and absorption costing net operating income (loss] figure! (5%) d. If the number of production units (15,090) is greater than the sales units (14,000), it will cause NOI of absorption costing to be greater than NO of variable costing. Why? Show your analysis! (5%] c. For credit applications, the bank asks for income statement prepared with absorption costing or variable costing. Give your analysis brieflyl (5%)