Problem 7-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO7-1, LO7-2, LO7-3]

Tami Tyler opened Tamis 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. Tylers 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.

Tamis Creations, Inc. Income Statement For the Quarter Ended March 31
Sales (28,050 units)				$	1,122,000
Variable expenses:
Variable cost of goods sold	$	437,580
Variable selling and administrative		192,142			629,722
Contribution margin					492,278
Fixed expenses:
Fixed manufacturing overhead		320,585
Fixed selling and administrative		195,942			516,528
Net operating loss				$	( 24,250)

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 producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced	33,050
Units sold	28,050
Variable costs per unit:
Direct materials		$	7.20
Direct labor		$	6.60
Variable manufacturing overhead		$	1.80
Variable selling and administrative		$	6.85

Required:

1. Complete the following:

c. Reconcile the variable and absorption costing net operating income (loss) figures.

3. During the second quarter of operations, the company again produced 33,050 units but sold 38,050 units. (Assume no change in total fixed costs.)

a. What is the companys variable costing net operating income (loss) for the second quarter?

b. What is the companys 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.