Problem $6-23($Algo$)$ Absorption and Variable Costing; Production Constant, Sales Fluctuate $[$LO$6-1,$ LO$6-2,$ LO$6-3]$

Tami Tyler opened Tami$$s Creations, Incorporated, a small manufacturing company, at the beginning of the year. Getting the company through its first quarter of operations placed a considerable strain on Ms$.$ Tyler$$s personal finances. The following income statement for the first quarter was prepared by a friend who just completed a course in managerial accounting at State University.

Tami$$s Creations, Incorporated

Income Statement

For the Quarter Ended March $31$

Sales $(28,800$ units$)$ $ $1,152,000$

Variable expenses:

Variable cost of goods sold $ $434,880$

Variable selling and administrative $181,440616,320$

Contribution margin $535,680$

Fixed expenses:

Fixed manufacturing overhead $ $254,400$

Fixed selling and administrative $293,280547,680$

Net operating loss $ $(12,000)$

Ms$.$ Tyler is discouraged over the loss shown for the quarter, particularly because she hoped to use the statement as support for a bank loan. Another friend, a CPA, insists the company should be using absorption costing rather than variable costing and claims if absorption costing had been used, the company probably would have reported a profit for the quarter.

At this point, Ms$.$ Tyler makes only one product$$a swimsuit. Production and cost data for the first quarter follow:

Units produced $31,800$

Units sold $28,800$

Variable costs per unit:

Direct materials $ $7\mathrm{.}50$

Direct labor $ $6\mathrm{.}10$

Variable manufacturing overhead $ $1\mathrm{.}50$

Variable selling and administrative $ $6\mathrm{.}30$

Required:

$1.$ Complete the following:

Compute the unit product cost under absorption costing.

What is the company$$s absorption costing net operating income $($loss$)$ for the quarter?

Reconcile the variable and absorption costing net operating income $($loss$)$ figures.

$3.$ During the second quarter of operations, the company again produced $31,800$ units but sold $34,800$ units. $($Assume no change in total fixed costs.$)$

What is the company$$s variable costing net operating income $($loss$)$ for the second quarter?

What is the company$$s absorption costing net operating income $($loss$)$ for the second quarter?

Reconcile the variable costing and absorption costing net operating incomes $($losses$)$ for the second quarter.