Problem 6-23 (Algo) Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO6-1, LO6-2, LO6-3] Tami Tyler opened Tami's Creations, Inc., a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms. Tyler's personal finances. The following income statement for the first quarter was prepared by a friend who has just completed a course in managerial accounting at State University. Tami's Creations, Inc. Income Statement For the Quarter Ended March 31 Sales (28,300 units) $ 1,132,000 Variable expenses: Variable cost of goods sold $ 475,440 Variable selling and administrative Contribution margin Fixed expenses: 181,120 656,560 475,440 Fixed manufacturing overhead Fixed selling and administrative 281,700 207,240 Net operating loss 488,940 $ (13,500) Ms. Tyler 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 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. Tyler is manufacturing only one product-a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow: Variable costs per unit: Direct labor Units produced Units sold Direct materials Variable manufacturing overhead 31,300 28,300 $ 7.40 $ 7.70 $ 1.70 Variable selling and administrative $ 6.40