Problem 7-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO7-1, LO7-2, LO7-3] Tami Tyler opened...

Problem 7-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO7-1, LO7-2, LO7-3]

Tami Tyler opened Tami’s Creations, Inc., 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.

Tami’s Creations, Inc. Income Statement For the Quarter Ended March 31
Sales (28,350 units)			$	1,134,000
Variable expenses:
Variable cost of goods sold	$	467,775
Variable selling and administrative		195,615		663,390
Contribution margin				470,610
Fixed expenses:
Fixed manufacturing overhead		266,800
Fixed selling and administrative		223,810		490,610
Net operating loss			$	( 20,000)

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	33,350
Units sold	28,350
Variable costs per unit:
Direct materials		$	7.40
Direct labor		$	7.50
Variable manufacturing overhead		$	1.60
Variable selling and administrative		$	6.90

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 operating income (loss) figures.

3. During the second quarter of operations, the company again produced 33,350 units but sold 38,350 units. (Assume no change in total 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 net operating incomes for the second quarter.

Solutions

Expert Solution

ekkarill92 answered 8 months ago

Next > < Previous

Related Solutions

Problem 7-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO7-1, LO7-2, LO7-3] Tami Tyler opened...

Problem 7-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO7-1, LO7-2, LO7-3] Tami Tyler opened Tami’s Creations, Inc., 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. Tami’s Creations, Inc. Income Statement For the Quarter...

Problem 6-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO6-1, LO6-2, LO6-3] Tami Tyler opened...

Problem 6-23 Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO6-1, LO6-2, LO6-3] Tami Tyler opened Tami’s Creations, Inc., 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. Tami’s Creations, Inc. Income Statement For the Quarter...

Problem 6-23A Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO6-1, LO6-2, LO6-3] Tami Tyler opened...

Problem 6-23A Absorption and Variable Costing; Production Constant, Sales Fluctuate [LO6-1, LO6-2, LO6-3] Tami Tyler opened Tami’s Creations, Inc., 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. Tami’s Creations, Inc. Income Statement For the...

Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3] Walsh...

Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3] Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 24 Direct labor $ 11 Variable manufacturing overhead $ 3 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 50,000 During its first year...

Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3] Walsh...

Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3] Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 28 Direct labor $ 13 Variable manufacturing overhead $ 3 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 320,000 Fixed selling and administrative expenses $ 100,000 During its first year...

Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3] Walsh...

Exercise 7-9 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2, LO7-3] Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 15 Variable manufacturing overhead $ 5 Variable selling and administrative $ 4 Fixed costs per year: Fixed manufacturing overhead $ 400,000 Fixed selling and administrative expenses $ 70,000 During its first year...

Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2] Haas Company...

Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2] Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 26 Direct labor $ 18 Variable manufacturing overhead $ 9 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 540,000 Fixed selling and administrative expenses $ 120,000 During its first year of...

Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2] Haas Company...

Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2] Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 29 Direct labor $ 21 Variable manufacturing overhead $ 5 Variable selling and administrative $ 1 Fixed costs per year: Fixed manufacturing overhead $ 330,000 Fixed selling and administrative expenses $ 150,000 During its first year of...

Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2] Haas Company...

Problem 7-18 Variable and Absorption Costing Unit Product Costs and Income Statements [LO7-1, LO7-2] Haas Company manufactures and sells one product. The following information pertains to each of the company’s first three years of operations: Variable costs per unit: Manufacturing: Direct materials $ 29 Direct labor $ 21 Variable manufacturing overhead $ 9 Variable selling and administrative $ 3 Fixed costs per year: Fixed manufacturing overhead $ 420,000 Fixed selling and administrative expenses $ 180,000 During its first year of...

Problem 7-22 Variable Costing Income Statements; Income Reconciliation [LO7-1, LO7-2, LO7-3] Denton Company manufactures and sells...

Problem 7-22 Variable Costing Income Statements; Income Reconciliation [LO7-1, LO7-2, LO7-3] Denton Company manufactures and sells a single product. Cost data for the product are given: Variable costs per unit: Direct materials $ 5 Direct labor 11 Variable manufacturing overhead 2 Variable selling and administrative 2 Total variable cost per unit $ 20 Fixed costs per month: Fixed manufacturing overhead $ 90,000 Fixed selling and administrative 160,000 Total fixed cost per month $ 250,000 The product sells for $47 per...

Subjects