Manacc Problem 7-13

Solution to Problem 7-13 1. Computation a. Unit product cost under absorption costing Per unit
Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3.50
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.00
Variable manufacturing overhead . . . . . . . . . . . . 1.00
Fixed manufacturing overhead . . . . . . . . . . . . . . . 10.00
Unit product cost . . . . . . . . . . . . . . . . . . . . . . . . . . . $26.50 b. Income statement for the quarter using variable costing Tami's Creations, Inc.
Income Statement
For the Quarter Ended March 31 Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,120,000
Cost of goods sold: Beginning inventory . . . . . . . . . . . . . . . . . . . . . . $- Cost of goods manufactured . . . . . . . . . . . . . . . 795,000 Goods available for sale . . . . . . . . . . . . . . . . . . . 795,000 Ending inventory . . . . . . . . . . . . . . . . . . . . . . . . . 53,000 742,000
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 378,000
Selling and administrative expenses . . . . . . . . . . 368,000
Net operating income . . . . . . . . . . . . . . . . . . . . . . . $10,000 c. Reconciliation Net operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . $(10,000)
Fixed manufacturing overhead cost deferred in inventory (absorption costing) . . . . . . . . . . . . . . . 20,000
Net operating iincome (absorption costing) . . . . $10,000 2. Was the CPA correct in suggesting that the company earned a profit for the quarter? " The CPA was correct in saying that the company earned a profit if the