Problem 7-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [L07-1, L07-2, LO7-3] 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 132.000 Tami's Creations, Inc. Income Statement For the Quarter Ended March 31 Sales (28,300 units) Variable expenses Variable cost of goods sold $ 447, 140 Variable selling and administrative 196,585 Contribution margin Fixed expenses Fixed manufacturins overhead 299,700 Fixed selling and administrative 20.995 Net operating loss 643, 325 510,675 22,500 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 oan Another friend a CPA Instithat 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 Athis point Ms. Ver manufacturing only one product-a swimsuit Production and cost data relating to the swimsuit for the first 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 28,300 Units produced Units sold Variable costs per unit: Direct Eaterials Direct labor Variable manufacturing overhead Variable selling and administrative $ 554 $ 5.95 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 oss) for the quarter c. Reconcile the variable and absorption costing net operating income oss figures 3. During the second quarter of operations, the company again produced 33 300 units but sold 38.300 units. Assume no change in total fixed costs) a What is the company's variable costing net operating income for the second quarter b. What is the company's absorption costing net operating income loss) on the second quarter Reconcile the variable costing and absorption costing net operating incomes for the second quarter Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.) Unit product cost Req13 > What is the company's absorption costing net operating income (loss) for the quarter? (Round your intermediate calculations to 2 decimal Tami's Creations, Inc. Absorption Costing Income Statement Reconcile the variable and absorption costing net operating income (loss) figures. (Losses and deductions should be entered as a negative. Reconciliation of Variable Costing and Absorption Costing Net Operating Income Variable costing net operating income (6) Absorption costing net operating income foss) During the second quarter of operations, the company again produced 33,300 units but sold 38,300 units. (Assume no change in total fixed costs.) What is the company's variable costing net operating income (loss) for the second quarter? Tami's Creations, Inc. Variable Costing Income Statement Net operating income (loss) During the second quarter of operations, the company again produced 33,300 units but sold 38,300 units. Assume no change in total fixed costs.) Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter. (Losses and deductions should be entered as a negative.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Absorption costing net operating income (loss)
