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 (28,000 units) 1,120,000 Variable expenses $462,000 Variable cost of goods sold 168,000 630,000 Variable selling and administrative expenses Contribution margin 490,000 Fixed expenses. 300,000 Fixed manufacturing overhead 200,000 500,000 Fixed selling and administrative expenses (10,000) Net operating loss 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: Units produced 30,000 Units sold 28,000 Variable costs per unit Direct materials 3.50 Direct labor 12.00 Variable manufacturing overhead 1.00 Variable selling and administrative 6.00