5 Tami Tyler opened Tami\'s Creations, Inc., a small manufacturing company, at t
ID: 2397666 • Letter: 5
Question
5 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 Tami's Creations, Inc Income Statenent For the Quarter Ended March 31 points Sales (22,800 units) Variable expenses: 5 798, 600 Variable cost of goods sold Variable selling and administrative eBook 253,000 424.600 374,800 Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative 202,500 2.2e.coe- 422, ee- Ask Net operating loss 48,sea) Print 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 Referencesargues 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 25,000 22,000 Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 7.20 2.80 $ 7.80 Required: 1. Complete the following: a. Compute the unit product cost under absorption costing. 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 25,000 units but sold 28,000 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 for the second quarterExplanation / Answer
1.
a.) Unit Product Cost under Absorption costing
Manufacturing expenses per Unit = Variable expense + Fixed Expenses (Fixed Manufacuring OH/Units Produced
= 7.2+2.8+1.5 + (202500/25000)
= 11.5+8.1
=19.6
b.) Net operation under absorption costing
c.) Reconciliation
Net Operating income under variable costing = -48500
Net operating income under absorption costing = -24200
Difference = 24300
Change inventory (closing stock only) = 3000
Fixed manufacturing overhead deferred in inventory = 3000x8.1
= 24300
2.
a.) Net operating under variable costing
b.) Net operating income under absorption costing
c.) Reconciliation
Net operating income under variable costing= 53500
Net operating income under absorption costing = 29200
Difference = 24300
Change inventory (opening stock only) = 3000
Fixed manufacturing overhead deferred in inventory = 3000x8.1
Sales 798600 Less: Cost of Goods Sold Opening Stock 0 Add: Cost of Goods manufacured ( 25000x19.6) 490000 Cost of Goods available for sale 490000 Less: Closing Stock (25000-22000=3000x19.6) 58800 431200 GROSS PROFIT 367400 Less: Variable selling and administrative expense (22000x7.8) 171600 Fixed selling and administrative 220000 Net Operating income -24200Related Questions
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