Question: James Tyler started a small manufacturing firm, JT Enterprises, at the starting of 2005. James has prepared following income statement for the first quarter of operations.
|
JT Enterprises
|
|
Income Statement For the Quarter Ended March 31, 2005
|
|
|
|
Sales revenue (25,000 units)
|
|
$1,200,000
|
|
Less variable costs:
|
|
|
|
Variable cost of goods sold
|
$540,000
|
|
|
Variable selling and administrative expenses
|
260,000
|
800,000
|
|
Contribution margin
|
_____________
|
_____________
|
|
Less fixed costs:
|
|
$400,000
|
|
Fixed manufacturing overhead
|
$300,000
|
|
|
Fixed selling and administrative expenses
|
150,000
|
450,000
|
|
|
_____________
|
_____________
|
|
Net loss
|
|
($50,000)
|
|
|
|
___________
|
|
|
|
___________
|
Variable cost of goods sold includes direct materials, direct labor, & variable manufacturing overhead. The firm starts the quarter with no inventory; it manufactured 30,000 units over the period. Variable selling & administrative expenses are based on units sold.
Required
[A] Compute unit product cost using absorption costing.
[B] Use absorption costing to rework the income statement.
[C] Does the loss figure change using absorption costing? If yes, explain your reasoning.
[D] During the 2nd quarter of operations, JT again manufactured 30,000 units but sold 35,000 units. Make income statements for the second quarter using both the variable-and absorption-costing methods.
[E] Describe the difference in net income (or loss) in the 2nd quarter between the two statements prepared in requirement (D).