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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
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 (20,000 units) Variable expenses: Tami's Creations, Incorporated Income Statement For the Quarter Ended March 31 Variable cost of goods sold Variable selling and administrative Contribution margin Fixed expensest Fixed manufacturing overhead Fixed selling and administrative Net operating loss $ 1,152,000 $ 501,120 184,320 685,440 466,560 286,200 193,860 480,060 $ (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. 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 Unite sold Variable coats per uniti Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. 31,800 20,000 $7.40 $8.00 $2.00 $6.40 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 cornnd nuarter of onerations the company anain nendured 31 900 unite hut enld 24 Rnninite (Accume no channa in
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