Question
In: Accounting
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....
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.
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Tami’s Creations, Inc. Income Statement For the Quarter Ended March 31 |
||||||
| Sales (28,600 units) | $ | 1,144,000 | ||||
| Variable expenses: | ||||||
| Variable cost of goods sold | $ | 466,180 | ||||
| Variable selling and administrative | 200,200 | 666,380 | ||||
| Contribution margin | 477,620 | |||||
| Fixed expenses: | ||||||
| Fixed manufacturing overhead | 284,400 | |||||
| Fixed selling and administrative | 206,720 | 491,120 | ||||
| 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 | 31,600 | |||
| Units sold | 28,600 | |||
| Variable costs per unit: | ||||
| Direct materials | $ | 7.30 | ||
| Direct labor | $ | 7.10 | ||
| Variable manufacturing overhead | $ | 1.90 | ||
| Variable selling and administrative | $ | 7.00 | ||
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 31,600 units but sold 34,600 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
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| Tami Tyler | Quarter 1 | Note |
| Sales | 1,144,000.00 | A |
| Units sold | 28,600.00 | B |
| Sell price | 40.00 | C=A/B |
| Answer 1 a | Quarter 1 | |
| Fixed manufacturing overhead | 284,400.00 | D |
| Units produced | 31,600.00 | E |
| Fixed manufacturing overhead per unit | 9.00 | F=D/E |
| Add: | ||
| Direct materials | 7.30 | |
| Direct labor | 7.10 | |
| Variable manufacturing overhead | 1.90 | |
| Unit product cost- Absorption costing | 25.30 | G |
| Workings for Answer 1 b | Quarter 1 | |
| Units sold | 28,600.00 | See B |
| Cost of goods sold | 723,580.00 | H=G*B |
| Absorption costing income statement | Quarter 1 | |
| Sales | 1,144,000.00 | See A |
| Less: Costs of goods sold | 723,580.00 | See H |
| Gross profit | 420,420.00 | |
| Less: Selling and admin costs | ||
| Fixed Selling and admin costs | 206,720.00 | See D |
| Variable Selling and admin costs | 200,200.00 | Provided in the question |
| Absorption costing net Operating Income | 13,500.00 | I |
| Workings for Answer 1 c | Quarter 1 | |
| Units produced | 31,600.00 | See E |
| Units sold | 28,600.00 | See B |
| Ending Inventory- units | 3,000.00 | J=E-B |
| Answer 1 c | Quarter 1 | |
| Operating Income- absorption costing | 13,500.00 | See I |
| Less: Operating Income- variable costing | (13,500.00) | Provided in the question |
| Dollar difference | 27,000.00 | K |
| Ending Inventory | 3,000.00 | See J |
| Dollar difference per unit | 9.00 | L=K/J |
| This difference is fixed manufacturing overhead per unit of $ 9 as calculated in Note F. | ||
| Workings for Answer 3 a | Quarter 2 | |
| Direct materials | 7.30 | |
| Direct labor | 7.10 | |
| Variable manufacturing overhead | 1.90 | |
| Variable selling and admin per unit | 7.00 | |
| Variable expense per unit | 23.30 | M |
| Units sold | 34,600.00 | N |
| Total Variable costs | 806,180.00 | O=M*N |
| Sell price | 40.00 | P |
| Sales Value | 1,384,000.00 | Q=N*P |
| Variable costing income statement | Quarter 2 | |
| Sales | 1,384,000.00 | See Q |
| Less: Variable costs | 806,180.00 | See O |
| Contribution margin | 577,820.00 | |
| Less: Fixed costs | ||
| Fixed manufacturing overhead | 284,400.00 | Provided in the question |
| Fixed selling and admin | 206,720.00 | Provided in the question |
| Variable costing net Operating Income | 86,700.00 | R |
| Workings for Answer 3 b | Quarter 2 | |
| Units sold | 34,600.00 | See N |
| Absorption costing unit product cost | 25.30 | See G |
| Costs of goods sold | 875,380.00 | S=N*G |
| Variable Selling and admin per unit | 7.00 | T |
| Variable Selling and admin costs | 242,200.00 | U=N*T |
| Absorption costing income statement | Quarter 2 | |
| Sales | 1,384,000.00 | See Q |
| Less: Costs of goods sold | 875,380.00 | See S |
| Gross profit | 508,620.00 | |
| Less: Selling and admin costs | ||
| Fixed Selling and admin costs | 206,720.00 | Provided in the question |
| Variable Selling and admin costs | 242,200.00 | See U |
| Absorption costing net Operating Income | 59,700.00 | V |
| Answer 3 c | Quarter 2 | |
| Operating Income- absorption costing | 59,700.00 | See V |
| Less: Operating Income- variable costing | 86,700.00 | See R |
| Dollar difference | (27,000.00) | O |
| Opening Inventory | 3,000.00 |
 ekkarill92 answered 1 year agoRelated SolutionsTami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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.
Reconcile the variable and absorption costing net operating
income (loss) figures. (Losses and deductions should be
entered as a negative.)
Reconciliation of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (22,000 units) $ 798,600 Variable expenses: Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (28,450 units)
$
1,138,000
Variable expenses:
Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (28,600 units) $ 1,144,000
Variable expenses:
Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (28,400 units)
$
1,136,000
Variable expenses:
Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (29,000 units)
$
1,160,000
Variable expenses:
Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (29,000 units)
$
1,160,000
Variable expenses:
Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (22,000
units)
$
798,600
Variable expenses:
Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (28,900 units)
$
1,156,000
Variable expenses:
Variable cost of...
Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the beginning of the year....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 (24,000
units)
$
871,200
Variable expenses:
Variable cost of...
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