Tami Tyler opened Tami\'s Creations, Inc., a small manufacturing company, at the

Question

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 Statement For the Quarter Ended March 31 Sales (22,000 units) Variable expenses $ 798,600 Variable cost of goods sold Variable selling and administrative $ 261,800 171,600 433,400 Contribution margin Fixed expenses 365,200 Fixed manufacturing overhead Fixed selling and administrative 212,500 217,000 429,500 Net operating loss S (64,300) 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 would probably 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: 25,000 22,000 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 7.40 $ 2.70 $ 1.80 $ 7.80

Explanation / Answer

1) a) Unit product cost under absorption costing

Prdouct cost do not include Selling and Administrative expenses. It only include the manufacturing expenses .

= 7.40+2.70+1.80+(212500/25000)

= $20.4

b)

c)

2) a)

b)

c)

Income Statement uinder absorption costing Sales 798600.00 Cost of good sold 448800.00 Gross Margin 349800.00 Selling & Administrative expenses 388600.00 Net Operating income                             -38,800.00

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