Problem 7-23 Absorption and Variable Costing: Production Constant, Sales Fluctuate (L07-1, L07-2. LO7-3) Tomi Tyler opened Tami's Creations, Inc., a smas 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 of State University Tami's Creations, Inc Incone Statement For the Quarter Ended March 31 Sales (28,300 units) $1,132,000 Variable expenses Variable cost of goods sold $435,120 Variable selling and administrative 195,270 631,090 Contribution margin 500,00 Fixed expenses Fixed manufacturing overhead 299,700 Fixed selling and administrative 223,710 523,410 Net operating loss $ 22,500) 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: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative 33,380 28,300 $.7.10 $ 6.40 $ 1.90 $ 6.90 900, CULI LUULAVIY Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating loss 299,700 223, 710 523,410 $( 22.500) 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 33,300 28,300 Units produced Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative $ 7.10 $ 6.40 $ 1.90 $ 6.90 Required: 1. Complete the following: a. Compute the unit product cost under absorption costing, b. What is the company's absorption costing net operating income foss) for the quarter? c. Reconcile the variable and absorption costing net operating income (loss) figures. 3. During the second quarter of operations, the company again produced 33,300 units but sold 38,300 units. (Assume no change in total fixed costs.) a. What is the company's variable costing net operating income (loss) for the second quarter? b. What is the company's absorption costing net operating income (loss) for the second quarter? c. Reconcile the variable costing and absorption costing net operating incomes for the second quarter