Tami Tyler opened Tami’s Creations, Incorporated, 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, Incorporated Income Statement For the Quarter Ended March 31 Sales (28,700 units) $ 1,148,000 Variable expenses: Variable cost of goods sold $ 476,420 Variable selling and administrative 180,810 657,230 Contribution margin 490,770 Fixed expenses: Fixed manufacturing overhead 285,300 Fixed selling and administrative 218,970 504,270 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 31,700 Units sold 28,700 Variable costs per unit: Direct materials $ 7.50 Direct labor $ 7.30 Variable manufacturing overhead $ 1.80 Variable selling and administrative $ 6.30 Required: Complete the following: 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. During the second quarter of operations, the company again produced 31,700 units but sold 34,700 units. (Assume no change in total fixed costs.) 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? Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter.

Tami Tyler opened Tami’s Creations, Incorporated, 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, Incorporated Income Statement For the Quarter Ended March 31 Sales (28,700 units) $ 1,148,000 Variable expenses: Variable cost of goods sold $ 476,420 Variable selling and administrative 180,810 657,230 Contribution margin 490,770 Fixed expenses: Fixed manufacturing overhead 285,300 Fixed selling and administrative 218,970 504,270 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 31,700 Units sold 28,700 Variable costs per unit: Direct materials $ 7.50 Direct labor $ 7.30 Variable manufacturing overhead $ 1.80 Variable selling and administrative $ 6.30 Required: Complete the following: 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. During the second quarter of operations, the company again produced 31,700 units but sold 34,700 units. (Assume no change in total fixed costs.) 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? Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter2: Basic Cost Management Concepts

Section: Chapter Questions

Problem 34P: Mason, Durant, and Westbrook (MDW) is a tax services firm. The firm is located in Oklahoma City and...

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Tami’s Creations, Incorporated
Sales (28,700 units)		$ 1,148,000
Variable expenses:
Variable cost of goods sold	$ 476,420
Variable selling and administrative	180,810	657,230
Contribution margin		490,770
Fixed expenses:
Fixed manufacturing overhead	285,300
Fixed selling and administrative	218,970	504,270
Net operating loss		$ ( 13,500)

Units produced	31,700
Units sold	28,700
Variable costs per unit:
Direct materials	$ 7.50
Direct labor	$ 7.30
Variable manufacturing overhead	$ 1.80
Variable selling and administrative	$ 6.30

Required:

Complete the following:
1. Compute the unit product cost under absorption costing.
2. What is the company’s absorption costing net operating income (loss) for the quarter?
3. Reconcile the variable and absorption costing net operating income (loss) figures.

During the second quarter of operations, the company again produced 31,700 units but sold 34,700 units. (Assume no change in total fixed costs.)
1. What is the company’s variable costing net operating income (loss) for the second quarter?
2. What is the company’s absorption costing net operating income (loss) for the second quarter?
3. Reconcile the variable costing and absorption costing net operating incomes (losses) for the second quarter.

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Tami’s Creations, Incorporated
Income Statement
For the Quarter Ended March 31
Sales (28,700 units)		$ 1,148,000
Variable expenses:
Variable cost of goods sold	$ 476,420
Variable selling and administrative	180,810	657,230
Contribution margin		490,770
Fixed expenses:
Fixed manufacturing overhead	285,300
Fixed selling and administrative	218,970	504,270
Net operating loss		$ ( 13,500)