Create an Account

Already have account?

Forgot Your Password ?

Home / Questions / Tami Tyler opened Tami’s Creations, Inc., a small manufacturingcompany, at the beginning...

Tami Tyler opened Tami’s 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.

Tami Tyler opened Tami’s 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.Tyler’s 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.

Tami’s Creations, Inc.

Income Statement

For the Quarter Ended March 31

Sales (21,000units)       $ 762,300  
Variable expenses:            
Variable cost of goods sold $ 249,900        
Variable selling andadministrative   165,900     415,800  
Contribution margin         346,500  
Fixed expenses:            
Fixed manufacturingoverhead   199,200        
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 product—aswimsuit. Production and cost data relating to the swimsuit for thefirst quarter follow:

     
Units produced 24,000
Units sold 21,000
Variable costs per unit:  
Directmaterials   $ 7.30
Direct labor   $ 2.90
Variable manufacturingoverhead   $ 1.70
Variable selling andadministrative   $ 7.90
 

Required:

1. Complete the following:

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 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 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 netoperating incomes for the second quarter.

Jun 01 2021 View more View Less

Answer (Solved)

question Subscribe To Get Solution

Related Questions