Tami Tyler openedTami’s Creations, Inc., a small manufacturing company, at thebeginning of the year. Getting the company through its firstquarter of operations placed a considerable strain on Ms. Tyler’spersonal finances. The following income statement for the firstquarter was prepared by a friend who has just completed a course inmanagerial accounting at State University.

Tami’s Creations,Inc. Income Statement For the Quarter EndedMarch 31
Sales (28,400 units)				$	1,136,000
Variableexpenses:
Variable cost ofgoods sold	$	471,440
Variable sellingand administrative		195,960			667,400
Contributionmargin					468,600
Fixedexpenses:
Fixedmanufacturing overhead		251,200
Fixed sellingand administrative		229,400			480,600
Net operatingloss				$	( 12,000)

Ms. Tyler isdiscouraged over the loss shown for the quarter, particularlybecause she had planned to use the statement as support for a bankloan. Another friend, a CPA, insists that the company should beusing absorption costing rather than variable costing and arguesthat if absorption costing had been used the company probably wouldhave reported at least some profit for the quarter.

At this point, Ms.Tyler is manufacturing only one product—a swimsuit. Production andcost data relating to the swimsuit for the first quarterfollow:

Unitsproduced	31,400
Units sold	28,400
Variable costsper unit:
Direct materials		$	7.60
Directlabor		$	7.40
Variablemanufacturing overhead		$	1.60
Variable sellingand administrative		$	6.90

Required:

3. During the secondquarter of operations, the company again produced 31,400 units butsold 34,400 units. (Assume no change in total fixed costs.)

a. What is thecompany’s variable costing net operating income (loss) for thesecond quarter?

b. What is thecompany’s absorption costing net operating income (loss) for thesecond quarter?

c. Reconcile thevariable costing and absorption costing net operating incomes forthe second quarter.