Tami Tyler opened Tamis 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. 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, Incorporated Income Statement For the Quarter Ended March 31
Sales (28,600 units)		$ 1,144,000
Variable expenses:
Variable cost of goods sold	$ 486,200
Variable selling and administrative	197,340	683,540
Contribution margin		460,460
Fixed expenses:
Fixed manufacturing overhead	284,400
Fixed selling and administrative	189,560	473,960
Net operating loss		$ ( 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 producta swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced	31,600
Units sold	28,600
Variable costs per unit:
Direct materials	$ 7.40
Direct labor	$ 7.80
Variable manufacturing overhead	$ 1.80
Variable selling and administrative	$ 6.90

Required:

1. Complete the following:

a. Compute the unit product cost under absorption costing.

b. What is the companys 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 31,600 units but sold 34,600 units. (Assume no change in total fixed costs.)

a. What is the companys variable costing net operating income (loss) for the second quarter?

b. What is the companys absorption costing net operating income (loss) for the second quarter?

c. Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter.

PART ONE Compute the unit product cost under absorption costing.

Unit product cost=

PART TWO What is the companys absorption costing net operating income (loss) for the quarter? (Round your intermediate calculations to 2 decimal places.)

Sales=

Cost of goods sold=

Gross Margin=

Selling and administrative expenses=

Net operating income=

PART 3 Reconcile the variable and absorption costing net operating income (loss) figures. (Losses and deductions should be entered as a negative.)

Find answers in the box

Variable costing net operating income (loss)	ANSWER
Add: Fixed manufacturing overhead cost deferred in inventory under absorption costingselected answer correct	ANSWER
Absorption costing net operating income (loss)	ANSWER

PART 4 During the second quarter of operations, the company again produced 31,600 units but sold 34,600 units. (Assume no change in total fixed costs.) What is the companys variable costing net operating income (loss) for the second quarter? (Round your intermediate calculations to 2 decimal places.)

Sales=

Variable expenses:

Variable cost of goods sold=

Variable selling and administrative=

Contribution Margin=

Fixed selling and administrative=

Net operating income=

Part 5 During the second quarter of operations, the company again produced 31,600 units but sold 34,600 units. (Assume no change in total fixed costs.) What is the companys absorption costing net operating income (loss) for the second quarter? (Round your intermediate calculations to 2 decimal places.)

Sales=

Cost of goods sold=

Gross Margin=

Selling and adminsistrative expense=

Net operating income (loss)=

Part 6During the second quarter of operations, the company again produced 31,600 units but sold 34,600 units. (Assume no change in total fixed costs.) Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter. (Losses and deductions should be entered as a negative.)

Variable costing net operating income (loss)=

Deduct:Fixed manufacturing overhead cost released from inventory under absorption costing

Absorption costing net operating income (loss)=