Problem 7-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate (LO7-1, LO7-2, 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 $ 1,126,000 Tami's Creations, Inc. Income Statement For the Quarter Ended March 31 Sales (28,150 units) Variable expenses: Variable cost of goods sold $ 430,695 Variable selling and administrative 194,235 Contribution margin Fixed expenses: Fixed manufacturing overhead 265,200 Fixed selling and administrative 255,870 Net operating loss 624,930 501,070 521,070 $ ( 20,000) 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: 33,150 28,150 Units produced Units sold Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 7.60 $ 5.90 $ 1.80 $ 6.90 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. 3. During the second quarter of operations, the company again produced 33,150 units but sold 38,150 units. (Assume no change in total fixed costs.) a. What is the company's variable costing net operating income (loss) for the second quarter? b. What is the company's absorption costing net operating income (loss) for the second quarter? c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter. Complete this question by entering your answers in the tabs below. Req 1A Req 1B Req ic Req Req 3B Req 3C Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.) Unit product cost Req 1A Req 1B Req 10 Req Req 3B Req 3C What is the company's absorption costing net operating income (loss) for the quarter? (Round your intermediate calculations to 2 decimal places.) Tami's Creations, Inc. Absorption Costing Income Statement 0 Net operating income (loss) Req 1A Req 1B Reg 10 Req 3A Req 3B Req 3C 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 Incomes Variable costing net operating income (loss) Absorption costing net operating income (loss) Req 1A Req 1B Req 1C Req Req 3B Req 3C During the second quarter of operations, the company again produced 33,150 units but sold 38,150 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 0 0 Net operating income (loss) Req 1A Req 1B Reg 10 Req 3A Reque Req 3B Reg 30 During the second quarter of operations, the company again produced 33,150 units but sold 38,150 units. (Assume no change in total fixed costs.) What is the company's absorption costing net operating income (loss) for the second quarter? (Round your intermediate calculations to 2 decimal places.) Tami's Creations, Inc. Absorption Costing Income Statement 0 Net operating income (loss) Req 1A Req 1B Req ic Req 3A Req 3B Req 30 During the second quarter of operations, the company again produced 33,150 units but sold 38,150 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)
