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

  

    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:

  

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.

Required: 1. Complete the following a. Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.) Unit product cost b. Redo the company's income statement for the quarter using absorption costing. (Round your intermediate calculations to 2 decimal places.) Tami's Creations, Inc. Absorption Costing Income Statement Total Net operating income (loss) c. Reconcile the variable and absorption costing net operating income (loss) figures. (Round your intermediate calculations to 2 decimal places.) Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Absorption costing net operating income

Explanation / Answer

Solution 1:

Solution 2:

Computation of Unit Product Cost of Swimsuit - Absorption Costing Particulars Unit Cost Direct Material $7.30 Direct Labor $2.80 Variable manufacturing overhead $2.00 Fixed Manufacturing Overhead ($199,200/24000) $8.30 Unit Product Cost $20.40

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