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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

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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 $ 798,600 Sales (22,000 units) Variable expenses: Variable cost of goods sold Variable selling and administrative $259,600 171,600 431,200 367,400 Contribution margin Fixed expenses Fixed manufacturing overhead Fixed selling and administrative 210,000 220,000 430,000 Net operating loss $ (62,600) 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 Units sold Variable costs per unit: 25,000 22,000 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 7.20 $ 2.80 $1.80 $ 7.80

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