Tami Tyler opened Tami’s Creations, Inc., a small manufacturing company, at the
ID: 2514468 • Letter: T
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.
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:
Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.)
Redo the company’s income statement for the quarter using absorption costing. (Round your intermediate calculations to 2 decimal places.)
}""":ontiipcres_dab"t},:{2"_6,"0]:[7"_6,"llnu":51"_},e}lsfa":cylipo,"[]":errdtOor"s],s"os%20lngtirape%20oet"N",mecoing%20inateropt%20Ne["":stli,"t"ne:"e"amnNowpDro"d6,":25"_:{6","e}lsfa":cylipo,"[]":errdtOor"s],s"os%20lngtirape%20oet"N",mecoing%20inatero
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.)
Prepare a contribution format income statement for the quarter using variable costing. (Round your intermediate calculations to 2 decimal places.)
Prepare an income statement for the quarter using absorption costing. (Round your intermediate calculations to 2 decimal places.)
Reconcile the variable costing and absorption costing net operating incomes
Tami’s Creations, Inc.Income Statement
For the Quarter Ended March 31 Sales (22,000 units) $ 798,600 Variable expenses: Variable cost of goods sold $ 257,400 Variable selling and administrative 174,900 432,300 Contribution margin 366,300 Fixed expenses: Fixed manufacturing overhead 205,000 Fixed selling and administrative 215,000 420,000 Net operating loss $ ( 53,700)
Explanation / Answer
TAMI Creations INC Income Statement For the Quarter Ended March 31 PU Sales(22000 Units) 798600 36.30 Variable Expenses: Direct Material 7.40 Variable COGS 257400 11.70 Direct Labor 2.70 Variable S&A 174900 432300 7.95 VMOH 1.60 Total M Cost 11.70 Contribution Margin 366300 16.65 Fixed Manufacturing OH 205000 Fixed Expenses: Total Units Produced 25000 Fixed MOH 205000 Per Unit Rate 8.20 Fixed S&A 215000 420000 NOI -53700 1A Product Cost Under Absorption Costing: Direct Material 7.40 Direct Labor 2.70 VMOH 1.60 FMOH 8.20 Total M Cost 19.90 Note: Variable & Fixed S&A are not part of Product Cost. 1B TAMI Creations INC Income Statement in Absorption Costing For the Quarter Ended March 31 Sales(22000 Units) 798600 Less: COGS 437800 (22000*19.90) Gross Profit 360800 Less: Sales & Marketing Ex Variable 174900 Fixed 215000 389900 NOI -29100 3A TAMI Creations INC Direct Material 7.40 Income Statement in Variable Costing Direct Labor 2.70 For the Quarter 2 VMOH 1.60 Sales(28000 Units) 1016400 Total M Cost 11.70 Variable Expenses: Variable COGS 327600 Fixed Manufacturing OH 205000 Variable S&A 222600 550200 Total Units Produced 25000 Per Unit Rate 8.20 Contribution Margin 466200 Fixed Expenses: Fixed MOH 205000 Fixed S&A 215000 420000 NOI 46200 3B TAMI Creations INC Income Statement in Absorption Costing For the Quarter Ended March 31 Sales(28000 Units) 1016400 COGS*: Less: COGS 557200 Opening Inventory 59700 Working Note (3000*19.90) Add: Goods Manuafctured 497500 Gross Profit 459200 (25000*19.90) Total COGS 557200 Less: Sales & Marketing Ex Variable 222600 (28000*7.95) Fixed 215000 437600 NOI 21600 3C Reconciliation: Income Under Variable Costing 46200 Additional Cost Booked in Absorption Costing: Opening Inventory 3000 Income Under Absorption Costing 21600 Fixed OH Cost Per Unit 8.20 Additional Cost in Absorption 24600 Difference in Costing 24600 (Difference due to additional cost booked in Absorption Costing Hence reducing Profits) Note: In Variable Costing fixed Cost portion in Opening Inventory was completely charged in Previous Quarter. Hence has not effect in Q2 Income Statement. That has led to difference in Costing in two systems
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.