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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.
For the Quarter Ended March 31
Sales (21,000 units) $762,300 Variable expenses: Variable cost of goods sold$245,700 Variable selling and administrative expenses 161,700 407,400 Contribution margin 354,900 Fixed expenses: Fixed manufacturing overhead 196,800 Fixed selling and administrative expenses 215,000 411,800 Net operating loss $( 56,900)
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 24,000 Units sold 21,000 Variable costs per unit: Direct materials$7.40 Direct labor$2.80 Variable manufacturing overhead$1.50 Variable selling and administrative$
1. Complete the following:
a. Compute the unit product cost under absorption costing. (Round your intermediate and final answers to 2 decimal places.)
b. Redo the company’s income statement for the quarter using absorption costing.