Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 (28,450 units) $ 1,138,000
Variable expenses:
Variable cost of goods sold $ 432,440
Variable selling and administrative 199,150 631,590
Contribution margin 506,410
Fixed expenses:
Fixed manufacturing overhead 267,600
Fixed selling and administrative 258,810 526,410
Net operating loss $ ( 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 producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced 33,450
Units sold 28,450
Variable costs per unit:
Direct materials $ 7.20
Direct labor $ 6.00
Variable manufacturing overhead $ 2.00
Variable selling and administrative $ 7.00

Required:

(I already correctly answered the other questions, and I just need help with part 3C)

1. Complete the following:

a. Compute the unit product cost under absorption costing.

Unit product cost $23.20

b. What is the companys absorption costing net operating income (loss) for the quarter?

Tamis Creations, Inc.
Absorption Costing Income Statement
Sales $1,138,000
Cost of goods sold 660,040
Gross margin 477,960
Selling and administrative expenses 457,960
Net operating income (loss) $20,000

c. Reconcile the variable and absorption costing net operating income (loss) figures.b. What is the companys absorption costing net operating income (loss) for the quarter?

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss) $(20,000)
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing $40,000
Absorption costing net operating income (loss)

$20,000

3. During the second quarter of operations, the company again produced 33,450 units but sold 38,450 units. (Assume no change in total fixed costs.)

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

During the second quarter of operations, the company again produced 33,450 units but sold 38,450 units. (Assume no change in total fixed costs.) What is the companys variable costing net operating income (loss) for the second quarter?

Tamis Creations, Inc.
Variable Costing Income Statement
Sales $1,538,000
Variable expenses:
Variable cost of goods sold 584,440
Variable selling and administrative 269,150
853,590
Contribution margin 684,410
Fixed expenses:
Fixed manufacturing overhead 267,600
Fixed selling and administrative 258,810
526,410
Net operating income (loss) $158,000

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

During the second quarter of operations, the company again produced 33,450 units but sold 38,450 units. (Assume no change in total fixed costs.) What is the companys absorption costing net operating income (loss) for the second quarter?

Tamis Creations, Inc.
Absorption Costing Income Statement
Sales $1,538,000
Cost of goods sold (892,040)
Gross margin 645,960
Selling and administrative expenses (527,960)
Net operating income (loss) $118,000

c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter.

During the second quarter of operations, the company again produced 33,450 units but sold 38,450 units. (Assume no change in total fixed costs.) Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter.

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss) ?
Less: Fixed manufacturing overhead cost released from inventory under absorption costing ?
Absorption costing net operating income (loss) $118,000

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Connect For Financial Accounting

Authors: Author

6th Edition

1264140304, 9781264140305

More Books

Students also viewed these Accounting questions

Question

Identify the job expectancy rights of employees.

Answered: 1 week ago