Tami Tyler opened Tami's Creations, Incorporated, a small manufacturing company, atthe beginning of the year. Getting the company through its first quarter of operationsplaced a considerable strain on Ms. Tyler's personal finances. The following incomestatement for the first quarter was prepared by a friend who has just completed a coursein managerial accounting at State University.Tami's Creations, IncorporatedIncome StatementFor the Quarter Ended March 31$ 1,128,000Sales (28,200 units)Variable expenses:Variable cost of goods soldVariable selling and administrativeContribution marginFixed expenses:$ 431,460172,020603,480524,520Fixed manufacturing overheadFixed selling and administrative249,600536,520$ (12,000)286,920Net operating lossMs. Tyler is discouraged over the loss shown for the quarter, particularly because shehad 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 costingand argues that if absorption costing had been used the company probably would havereported at least some profit for the quarter.At this point, Ms. Tyler is manufacturing only one product-acost data relating to the swimsuit for the first quarter follow:suit. Production andUnits producedUnits soldVariable costs per unit:31, 20028,200$ 7.20$ 6.10$ 2.00$ 6.10Direct materialsDirect laborVariable manufacturing overheadVariable selling and administrative 3. During the second quarter of operations, the company again produced 31,200 unitsbut sold 34,200 units. (Assume no change in total fixed costs.)a. What is the company's variable costing net operating income (loss) for the secondquarter?b. What is the company's absorption costing net operating income (loss) for the secondquarter?c. Reconcile the variable costing and absorption costing net operating incomes for thesecond quarter.

Solution 3a: Tami Creations Contribution margin income statementFor the Quarter ended June 30…

Tami's Creations, Incorporated Income Statement For the Quarter Ended March 31 $ 1, es (28,200 units) iable expenses: ariable cost of goods sold $ 431,460 172,020 ariable selling and administrative tribution margin ed expenses: ixed manufacturing overhead ixed selling and administrative 249,600 286,920 operating loss $ ( ler is discouraged over the loss shown for the quarter, particularly because lanned to use the statement as support for a bank loan. Another friend, a Cl s that the company should be using absorption costing rather than variable rgues that if absorption costing had been used the company probably woul ted at least some profit for the quarter. s point, Ms. Tyler is manufacturing only one product-a swimsuit. Production lata relating to the swimsuit for the first quarter follow: ts produced ts sold iable costs per unit: irect materials 31,200 28,200 irect labor ariable manufacturing overhead $ 7.20 $ 6.10 $ 2.00 eriahle selling and administrative ¢ 6 10

Tami's Creations, Incorporated Income Statement For the Quarter Ended March 31 $ 1, es (28,200 units) iable expenses: ariable cost of goods sold $ 431,460 172,020 ariable selling and administrative tribution margin ed expenses: ixed manufacturing overhead ixed selling and administrative 249,600 286,920 operating loss $ ( ler is discouraged over the loss shown for the quarter, particularly because lanned to use the statement as support for a bank loan. Another friend, a Cl s that the company should be using absorption costing rather than variable rgues that if absorption costing had been used the company probably woul ted at least some profit for the quarter. s point, Ms. Tyler is manufacturing only one product-a swimsuit. Production lata relating to the swimsuit for the first quarter follow: ts produced ts sold iable costs per unit: irect materials 31,200 28,200 irect labor ariable manufacturing overhead $ 7.20 $ 6.10 $ 2.00 eriahle selling and administrative ¢ 6 10

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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