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. Sales (28,000 units). Variable expenses: Variable cost of goods sold.. Variable selling and administrative Contribution margin. Fixed expenses: Fixed manufacturing overhead.. Fixed selling and administrative. Net operating loss Tami's Creations, Inc. Income Statement For the Quarter Ended March 31 Required: 1. Units produced Units sold a. $462,000 168,000 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. Variable costs per nit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Complete the following: Compute the unit product cost under absorption costing. 300,000 200,000 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: $1,120,000 30,000 28,000 630,000 490,000 $3.50 $12.00 $1.00 $6.00 500,000 $ (10,000)
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. Sales (28,000 units). Variable expenses: Variable cost of goods sold.. Variable selling and administrative Contribution margin. Fixed expenses: Fixed manufacturing overhead.. Fixed selling and administrative. Net operating loss Tami's Creations, Inc. Income Statement For the Quarter Ended March 31 Required: 1. Units produced Units sold a. $462,000 168,000 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. Variable costs per nit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Complete the following: Compute the unit product cost under absorption costing. 300,000 200,000 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: $1,120,000 30,000 28,000 630,000 490,000 $3.50 $12.00 $1.00 $6.00 500,000 $ (10,000)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Transcribed Image Text: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.
Sales (28,000 units)
Variable expenses:
Variable cost of goods sold.
Variable selling and administrative.
Contribution margin ..
Fixed expenses:
Fixed manufacturing overhead..
Fixed selling and administrative.
Net operating loss
2.
Tami's Creations, Inc.
Income Statement
For the Quarter Ended March 31
Required:
1. Complete the following:
a.
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.
Units produced.
Units sold
b.
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:
b.
Variable costs per unit:
Direct materials
Direct labor
$462,000
168,000
Variable manufacturing overhead
Variable selling and administrative
300,000
200,000
$1,120,000
30,000
28,000
630,000
490,000
$3.50
$12.00
$1.00
$6.00
Compute the unit product cost under absorption costing.
What is the company's absorption costing net operating income (loss) for the quarter?
Reconcile the variable and absorption costing net operating income (loss) figures.
C.
Was the CPA correct in suggesting that the company really earned a "profit" for the quarter?
Explain.
3. During the second quarter of operations, the company again produced 30,000 units but sold
32,000 units. (Assume no change in total fixed costs.)
a.
What is the company's variable costing net operating income (loss) for the second
quarter?
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.
500,000
$ (10,000)
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education