Question
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
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 just completed a course in managerial accounting at State University.
Tamis Creations, Incorporated Income Statement For the Quarter Ended March 31 | ||
---|---|---|
Sales (28,900 units) | $ 1,156,000 | |
Variable expenses: | ||
Variable cost of goods sold | $ 491,300 | |
Variable selling and administrative | 202,300 | 693,600 |
Contribution margin | 462,400 | |
Fixed expenses: | ||
Fixed manufacturing overhead | $ 255,200 | |
Fixed selling and administrative | 219,200 | 474,400 |
Net operating loss | $ ( 12,000) |
Ms. Tyler is discouraged over the loss shown for the quarter, particularly because she hoped to use the statement as support for a bank loan. Another friend, a CPA, insists the company should be using absorption costing rather than variable costing and claims if absorption costing had been used, the company probably would have reported a profit for the quarter.
At this point, Ms. Tyler makes only one producta swimsuit. Production and cost data for the first quarter follow:
Units produced | 31,900 |
---|---|
Units sold | 28,900 |
Variable costs per unit: | |
Direct materials | $ 7.60 |
Direct labor | $ 7.60 |
Variable manufacturing overhead | $ 1.80 |
Variable selling and administrative | $ 7.00 |
Required:
- Complete the following:
- Compute the unit product cost under absorption costing.
- What is the companys absorption costing net operating income (loss) for the quarter?
- Reconcile the variable and absorption costing net operating income (loss) figures.
- 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.)
- What is the companys variable costing net operating income (loss) for the second quarter?
- What is the companys absorption costing net operating income (loss) for the second quarter?
- Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter.
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