I need help with this, please Tami Tyler opened Tami\'s Creations, Inc., a small
ID: 2547017 • Letter: I
Question
I need help with this, please
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 $266,200 Variable selling and administrative 170,500 436,700 Contribution margin Fixed expenses: 361,900 Fixed manufacturing overhead Fixed selling and administrative 202,500 220,000 422,500 Net operating loss 60,600) 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 Units sold Variable costs per unit: 25,000 22,000 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $7.20 $3.00 $1.90 $7.75Explanation / Answer
Req 1a: Unit cost undr Absorption costing Direct Material 7.20 Direct labour 3.00 Variable Manufacturing overheads 1.90 Fixed Manufacturing overheads 8.10 Absorption costing unit prroduct cost 20.20 Req 1-b: Income Stataement under Absorption Costing Sales $798,600 Cost of Goods sold 444400 Gross Margin $354,200 Selling and distribution expense 390,500 Net operating income -36,300 Req 1-c: Reconciliation Statement: Net income under Variable cocsting -60600 Add: Fixed cost deferred to next year (3000 units @8.10) 24300 Net income under Absorption costing -36300 Req 3-a Income Statement under variable costing Sales 1,008,000 Less: Variable cost variable cost of goods sold 338,800 Variable selling expense 217,000 555,800 Contribution margin 452,200 Fixed expense: Fixed Manufacturing overheads 202,500 Fixed selling expense 220,000 Net operating Income 29,700 Req 3-b: Income Stataement under Absorption Costing Sales $1,008,000 Cost of Goods sold 565600 Gross Margin $442,400 Selling and distribution expense 437,000 Net operating income 5,400 Note: Cost of goods sold: Beginning (3000 units @20.20) 60600 Current cost(25000 units @20.20) 505000 Cost of goods sold 565600 Req 3-c: Reconciliation Statement: Net income under variable costing 29700 Less: Fixed OH released in beginning inventory (3000 units @8.10) -24300 Net income under Absroption costing 5400