Tami Tyler opened Tamiâs Creations, Inc., a small manufacturingcompany, at the beginning of the year. Getting the company throughits first quarter of operations placed a considerable strain on Ms.Tylerâs personal finances. The following income statement for thefirst quarter was prepared by a friend who has just completed acourse in managerial accounting at State University.
Tamiâs Creations, Inc.
For the Quarter Ended March 31
|Variable cost of goods sold||$||249,900|
|Variable selling andadministrative||165,900||415,800|
|Fixed selling andadministrative||220,000||419,200|
|Net operating loss||$||( 72,700)|
Ms. Tyler is discouraged over the loss shown for the quarter,particularly because she had planned to use the statement assupport for a bank loan. Another friend, a CPA, insists that thecompany should be using absorption costing rather than variablecosting and argues that if absorption costing had been used thecompany probably would have reported at least some profit for thequarter.
At this point, Ms. Tyler is manufacturing only one productâaswimsuit. Production and cost data relating to the swimsuit for thefirst quarter follow:
|Variable costs per unit:|
|Variable selling andadministrative||$||7.90|
1. Complete the following:
a. Compute the unit product cost under absorption costing.
b. What is the companyâs absorption costing net operating income(loss) for the quarter?
c. Reconcile the variable and absorption costing net operatingincome (loss) figures.
3. During the second quarter of operations, the company againproduced 24,000 units but sold 27,000 units. (Assume no change intotal fixed costs.)
a. What is the companyâs variable costing net operating income(loss) for the second quarter?
b. What is the companyâs absorption costing net operating income(loss) for the second quarter?
c. Reconcile the variable costing and absorption costing netoperating incomes for the second quarter.
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