Question

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*CHECK NUMBERS; PLEASE PROVIDE AN EXPLAINATION FOR EACH AND ANSWER EACH PART FOR QUESTIONS #1-#3 WITH FORMULAS*

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)					$	798,600
Variable expenses:
Variable cost of goods sold	$	257,400
Variable selling and administrative expenses		176,000				433,400
Contribution margin						365,200
Fixed expenses:
Fixed manufacturing overhead		202,500
Fixed selling and administrative expenses		218,000				420,500
Net operating loss					$	( 55,300	)

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 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		25,000
Units sold		22,000
Variable costs per unit:
Direct materials	$	7.20
Direct labor	$	2.70
Variable manufacturing overhead	$	1.80
Variable selling and administrative	$	8.00

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
	0
Net operating income (loss)	$0

+

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 (Losses)
Variable costing net operating income (loss)
Absorption costing net operating income (loss)

+

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. Prepare a contribution format income statement for the quarter using variable costing. (Round your intermediate calculations to 2 decimal places.)

Tami’s Creations, Inc.
Variable Costing Income Statement
Variable expenses:
		0
		0
Fixed expenses:
		0
		$0

+

b. Prepare an 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
	0
	$0

+

c. Reconcile the variable costing and absorption costing net operating incomes. (Round your intermediate calculations to 2 decimal places.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes (Losses)
Variable costing net operating income (loss)
Absorption costing net operating income (loss)