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. Sales (28,000 units) Variable expenses: Tami's Creations, Incorporated Income Statement For the Quarter Ended March 31 Variable cost of goods sold Variable selling and administrative Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating loss $ 1,120,000 $ 464,800 179,200 644,000 476,000 248,000 240,000 488,000 $ (12,000) 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 Units sold Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. 31,000 28,000 $ 7.30 $ 7.40 $ 1.90 $ 6.40 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 31,000 units but sold 34,000 units. (Assume no change in total fixed costs.) a. What is the company's variable costing net operating income (loss) for the second quarter? 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 (losses) for the second quarter.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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.
Sales (28,000 units)
Variable expenses:
Tami's Creations, Incorporated
Income Statement
For the Quarter Ended March 31
Variable cost of goods sold
Variable selling and administrative
Contribution margin
Fixed expenses:
Fixed manufacturing overhead
$ 1,120,000
$ 464,800
179,200
644,000
476,000
es
Fixed selling and administrative
Net operating loss
248,000
240,000
488,000
$ (12,000)
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
Units sold
Variable costs per unit:
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative
Required:
1. Complete the following:
a. Compute the unit product cost under absorption costing.
31,000
28,000
$ 7.30
$ 7.40
$ 1.90
$ 6.40
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 31,000 units but sold 34,000 units. (Assume no change in
total fixed costs.)
a. What is the company's variable costing net operating income (loss) for the second quarter?
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 (losses) for the second quarter.
Transcribed Image Text: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. Sales (28,000 units) Variable expenses: Tami's Creations, Incorporated Income Statement For the Quarter Ended March 31 Variable cost of goods sold Variable selling and administrative Contribution margin Fixed expenses: Fixed manufacturing overhead $ 1,120,000 $ 464,800 179,200 644,000 476,000 es Fixed selling and administrative Net operating loss 248,000 240,000 488,000 $ (12,000) 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 Units sold Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. 31,000 28,000 $ 7.30 $ 7.40 $ 1.90 $ 6.40 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 31,000 units but sold 34,000 units. (Assume no change in total fixed costs.) a. What is the company's variable costing net operating income (loss) for the second quarter? 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 (losses) for the second quarter.
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