Question

Tami Tyler opened Tami’s Creations, Inc., a small manufacturingcompany, at the beginning of the year. Getting the company throughits first quarter of operations placed a considerable strain on Ms.Tyler’s personal finances. The following income statement for thefirst quarter was prepared by a friend who has just completed acourse in managerial accounting at State University.

Tami’s Creations, Inc. Income Statement For the Quarter Ended March 31
Sales (23,000units)			$	834,900
Variableexpenses:
Variable cost of goods sold	$	282,900
Variable selling andadministrative		184,000		466,900
Contributionmargin				368,000
Fixed expenses:
Fixed manufacturing overhead		213,200
Fixed selling and administrative		220,000		433,200
Net operatingloss			$	( 65,200)

Ms. Tyler is discouraged over the lossshown for the quarter, particularly because she had planned to usethe statement as support for a bank loan. Another friend, a CPA,insists that the company should be using absorption costing ratherthan variable costing and argues that if absorption costing hadbeen used the company would probably have reported at least someprofit for the quarter.

At this point, Ms. Tyler is manufacturing only one product, aswimsuit. Production and cost data relating to the swimsuit for thefirst quarter follow:

Units produced		26,000
Units sold		23,000
Variable costs perunit:
Direct materials	$	7.60
Direct labor	$	2.90
Variable manufacturing overhead	$	1.80
Variable selling andadministrative	$	8.00

Required:

1.	Complete the following:

a.	Compute the unit product cost under absorption costing.(Round your intermediate and final answers to 2 decimalplaces.)

b.	Redo the company’s income statement for the quarter usingabsorption costing. (Round your intermediate calculationsto 2 decimal places.)

c.	Reconcile the variable and absorption costing net operatingincome (loss) figures. (Round your intermediatecalculations to 2 decimal places.)

3.	During the second quarter of operations, the company againproduced 26,000 units but sold 29,000 units. (Assume no change intotal fixed costs.)

a.	Prepare a contribution format income statement for the quarterusing variable costing. (Round your intermediatecalculations to 2 decimal places.)

b.	Prepare an income statement for the quarter using absorptioncosting. (Round your intermediate calculations to 2 decimalplaces.)

c.	Reconcile the variable costing and absorption costing netoperating incomes. (Round your intermediate calculations to2 decimal places.)