Question

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 (28,800 units)				$	1,152,000
Variable expenses:
Variable cost of goods sold	$	472,320
Variable selling and administrative		200,160			672,480
Contribution margin					479,520
Fixed expenses:
Fixed manufacturing overhead		286,200
Fixed selling and administrative		206,820			493,020
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 product—a swimsuit. Production and cost data relating to the swimsuit for the first quarter follow:

Units produced	31,800
Units sold	28,800
Variable costs per unit:
Direct materials		$	7.60
Direct labor		$	7.20
Variable manufacturing overhead		$	1.60
Variable selling and administrative		$	6.95

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 31,800 units but sold 34,800 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.

Compute the unit product cost under absorption costing. (Round your answer to 2 decimal places.)

	Unit product cost

What is the company’s absorption costing net operating income (loss) for the quarter? (Round your intermediate calculations to 2 decimal places.)

	Tami’s Creations, Inc. Absorption Costing Income Statement Total Net operating income (loss)

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

	Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Absorption costing net operating income (loss)

During the second quarter of operations, the company again produced 31,800 units but sold 34,800 units. What is the company’s variable costing net operating income (loss) for the second quarter?

	Tami’s Creations, Inc. Variable Costing Income Statement Net operating income (loss)

During the second quarter of operations, the company again produced 31,800 units but sold 34,800 units. What is the company’s absorption costing net operating income (loss) for the second quarter? (Round your intermediate calculations to 2 decimal places.)

	Tami’s Creations, Inc. Absorption Costing Income Statement Total Net operating income (loss)

During the second quarter of operations, the company again produced 31,800 units but sold 34,800 units. Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter.  (Losses and deductions should be entered as a negative.)

	Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Absorption costing net operating income (loss)

Answer 1