Question
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
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 (28,400 units)$1,136,000Variable expenses:Variable cost of goods sold$451,560Variable selling and administrative193,120644,680Contribution margin491,320Fixed expenses:Fixed manufacturing overhead251,200Fixed selling and administrative252,120503,320Net operating loss$( 12,000)
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 producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:
Units produced31,400Units sold28,400Variable costs per unit:Direct materials$7.20Direct labor$7.00Variable manufacturing overhead$1.70Variable selling and administrative$6.80
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 31,400 units but sold 34,400 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.
Specifically need help with 3a and 3b
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