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. Sales (28,900 units) Variable expenses Tami's Creations, Incorporated Income Statement For the Quarter Ended March 31 Variable coat of goods sold Variable selling and administrative Contribution margin ces Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating loss $ 1,156,000 $442,170 182,070 624,240 531,760 287,100 259,160 545,260 $13,500) 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. raditime Drolution and net data relatinn to the swimsuit for the first At this naint Me Ti ints ellook Print References Units produced Units sold Variable costs per uniti Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Required: 1. Complete the following: 31,900 20,900 $7.50 $ 6.20 5.1.60 $ 6.30 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 31,900 units but sold 34,900 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 loxaway Company is a merchandiser that segments its business into two divisions-Commercial and Residential. Ine company's accounting intern was asked to prepare segmented income statements that the company's divisional managers could use to calculate their break-even points and make decisions. She took the prior month's companywide income statement and prepared the absorption format segmented income statement shown below: Sales Cost of goods sold Gross margin ok Selling and administrative expenses ht Net operating incone nt Total Company $930,000 Commercial $310,000 Residential $620,000 623,100 170,500 452,600 306,900 139,500 167,400 280,000 128,000 160,000 $ 18,900 $11,500 $7,400 ences In preparing these statements, the intern determined that Toxaway's only variable selling and administrative expense is a 10% sales commission on all sales. The company's total fixed expenses include $69,000 of common fixed expenses that would continue to be Incurred even if the Commercial or Residential segments are discontinued, $74,000 of fixed expenses that would disappear if the Commercial segment is dropped, and $52,000 of fixed expenses that would disappear if the Residential segment is dropped. Required: 1. Do you agree with the Intern's decision to use an absorption format for her segmented income statement? 2. Based on a review of the intern's segmented income statement. a. How much of the company's common fixed expenses did she allocate to the Commercial and Residential segments? b. Which of the following three allocation bases did she most likely used to allocate common fixed expenses to the Commercial and Residential segments: (a) sales, (b) cost of goods sold, or (c) gross margin? 3. Do you agree with the intern's decision to allocate the common fixed expenses to the Commercial and Residential segments? 4. Redo the intern's segmented income statement using the contribution format. 5. Compute the companywide break-even point in dollar sales. 6. Compute the break-even point in dollar sales for the Commercial Division and for the Residential Division 7. Assume the company decided to pay its sales representatives in the Commercial and Residential Divisions a total monthly salary of $23,000 and $46,000, respectively, and to lower its companywide sales commission percentage from 10% to 5%. Calculate the new break-even point in dollar sales for the Commercial Division and the Residential Division. Carlos Cavalas, the manager of Echo Products' Brazilian Division, is trying to set the production schedule for the last quarter of the year. The Brazilian Division had planned to sell 68,860 units during the year, but by September 30 only the following activity had been reported: bok Int ences Inventory, January 1 Production Sales Inventory, September 30 1 Unita 0 72,300 62,600 9,700 The division can rent warehouse space to store up to 29,700 units. The minimum inventory level that the division should carry is 2,300 units. Mr. Cavalas is aware that production must be at least 5,820 units per quarter in order to retain a nucleus of key employees. Maximum production capacity is 44,800 units per quarter. Demand has been soft, and the sales forecast for the last quarter is only 19,000 units. Due to the nature of the division's operations. fixed manufacturing overhead is a major element of product cost. Required: 1a. Assume that the division is using variable costing. How many units should be scheduled for production during the last quarter of the year? 1b. Assume that the division is using varble costing. Will the number of units scheduled for production affect the division's reported income or loss for the year? 2. Assume that the division is using absorption costing and that the divisional manager is given an annual bonus based on divisional operating income. If Mr. Cavalas wants to maximize his division's operating income for the year, how many units should be scheduled for production during the last quarter