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 (23,000 units)			$	834,900
Variable expenses:
Variable cost of goods sold	$	280,600
Variable selling and administrative		180,550		461,150
Contribution margin				373,750
Fixed expenses:
Fixed manufacturing overhead		215,800
Fixed selling and administrative		220,000		435,800
Net operating loss			$	( 62,050)

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 would probably 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

26,000

Units sold

23,000

Variable costs per unit:

Direct materials

$

7.30

Direct labor

$

3.00

Variable manufacturing overhead

$

1.90

Variable selling and administrative

$

7.85

Required:

1.	Complete the following:

a.

Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.)

Unit product cost

$20.50

b.

Redo the companys income statement for the quarter using absorption costing. (Round your intermediate calculations to 2 decimal places.)

Tamis Creations, Inc.
Absorption Costing Income Statement
	Total
Sales	$834,900
Cost of goods sold	471,500
Gross margin	363,400
Selling and administrative expenses	?
Net operating income (loss)	$363,400

c.

Reconcile the variable and absorption costing net operating income (loss) figures. (Round your intermediate calculations to 2 decimal places.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income (loss)	$(62,050)
Add: Fixed manufacturing overhead cost deferred in inventory	?
Absorption costing net operating income	?

3.	During the second quarter of operations, the company again produced 26,000 units but sold 29,000 units. (Assume no change in total fixed costs.)

a.

Prepare a contribution format income statement for the quarter using variable costing. (Round your intermediate calculations to 2 decimal places.)

Tamis Creations, Inc.
Variable Costing Income Statement
Sales		?
Variable expenses:
Variable cost of goods sold	?
Variable selling and administrative	?
		0
Contribution margin		0
Fixed expenses:
Fixed manufacturing overhead	?
Fixed selling and administrative	?
		0
Net operating income		$0

b.

Prepare an income statement for the quarter using absorption costing. (Round your intermediate calculations to 2 decimal places.)

Tamis Creations, Inc.
Absorption Costing Income Statement
	Total
Sales	?
Cost of goods sold	?
Gross margin	0
Selling and administrative expenses	?
Net operating income	$0

c.

Reconcile the variable costing and absorption costing net operating incomes. (Round your intermediate calculations to 2 decimal places.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income	?
Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing	?
Absorption costing net operating income	?