Chapter & Tami Tyler opened Tamis Creations, Inc, a small manufacturing company
ID: 2334870 • Letter: C
Question
Chapter & Tami Tyler opened Tamis Creations, Inc, a small manufacturing company at the beginning of the year Getting the company through ts first quarter of operations placed a considerable strain on Ms. Tyler's personal finances. The following income statement for the frst quarter was prepared by a friend who has just completed a course in managerial accounting at State University Varlable cost of goods seld 270,600 Fixed selling and adeinistrative 18,418,000 Net operating loss Ms. Tyler is discouraged over the loss shown for the quarter particularly becouse 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 veriable 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 Direct materials Variable manufacturing overhead Varlable selline and adeinistrative 5 7.se 5 2.80 5 7.85 Required: 1 Complete the following a Compute the unit product cost under absorption costing Prey 5 ofs! Next to searchExplanation / Answer
Tami's Creations Inc. Sales 22000 $ 7,98,600.00 Variable Expenses Variable cost of goods sold $ 2,70,600.00 Variable Selling & Administrative Expenses $ 1,72,700.00 $ 4,43,300.00 Contribution Margin $ 3,55,300.00 Fixed Expenses Fixed Manufacturing Overhead $ 2,00,000.00 Fixed Selling & Administrative Expenses $ 2,18,000.00 $ 4,18,000.00 Net Operating Loss $ -62,700.00 Production Cost data for the first quarter Units Produced 25000 Units Sold 22000 Variable Cost per unit Direct Material $ 7.50 Direct Labor $ 2.80 Variable Manufacturing Overhead $ 2.60 Variable Administrative Expenses $ 7.85 a) Unit Product Cost under Absorption Costing Variable Cost of goods sold=($270600/22000) $ 12.30 Fixed Manufacturing Overhead=($200000/25000) $ 8.00 Total Unit Product cost under Absorption Costing $ 20.30 b) Tami's Creations Inc. Absorption Costing Income Statement Sales $ 7,98,600.00 Cost of goods sold=(22000*$20.30) $ 4,46,600.00 Gross Margin $ 3,52,000.00 Selling & Administrative Expenses($172700+$218000) $ 3,90,700.00 Net Operating Loss $ -38,700.00 c ) Reconciliation Under Variable & Absorption costing Income Statement Net Operating Income/loss under variable costing $ -62,700.00 Add: Manufacturing Overhead deferred in Inventory=(25000-22000)*$8 $ 24,000.00 Absorption costing income statement $ -38,700.00 3) Second Quarter a) Units Produced 25000 Units Sold 28000 Tami's Creations Inc. Variable costing Income Statement Sales $ 28,000.00 $ 10,16,400.00 Variable Expenses Variable cost of goods sold=($270600/22000)*28000 $ 3,44,400.00 Variable Selling & Administrative Expenses=($172700/22000)*28000 $ 2,19,800.00 $ 5,64,200.00 Contribution Margin $ 4,52,200.00 Fixed Expenses Fixed Manufacturing Overhead $ 2,00,000.00 Fixed Selling & Administrative Expenses $ 2,18,000.00 $ 4,18,000.00 Net Operating Loss $ 34,200.00 3b) Tami's Creations Inc. Absorption Costing Income Statement Sales=($798600/22000)*28000 $ 10,16,400.00 Cost of goods sold=(28000*$20.3) $ 5,68,400.00 Gross Margin $ 4,48,000.00 Selling & Administrative Expenses($219800+$218000) $ 4,37,800.00 Net Operating Profit $ 10,200.00 Reconciliation Under Variable & Absorption costing Income Statement 3c ) Net Operating Income/loss under variable costing $ 34,200.00 Less: Manufacturing Overhead cost released in Inventory=(28000-25000)*$8 $ -24,000.00 Absorption costing income statement $ 10,200.00
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