Tami Tyler opened Tami's Creations, Incorporated, 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 Tani's Creations, Incorporated Income Statement For the quarter Ended March 31 Sales (28,408 units) $ 1,136, 800 Variable expenses: variable cost of goods sold $ 437,360 Variable selling and administrative 195,960 633, 320 contribution margin 502,689 Fixed expenses: Fixed manufacturing overhead 251,200 Fixed selling and administrative 263,480 514,660 Net operating loss $ (12,000) 31,400 $ 7.40 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 Units sold 2400 Variable costs per unit: Direct materials Direct labor $ 6.30 Variable manufacturing overhead Variable selling and administrative 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 foss) for the second quarter? c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter $ 1.70 $ 6.90 Req 1A Reg. 18 During the second quarter of operations, the company again produced 31,400 units but sold 34,400 units. Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter. (Losses and deductions = be entered as a negative.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Absorption costing net operating income (loss)
