Whitman Company has just completed its first year of operations. The company\'s

Question

Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year follows Whitman Company Income Statement Sales (40,000 units x $41.60 per unit) Cost of goods sold (40,000 units × $24 per unit) Gross margin Selling and administrative expenses Net operating income $1,664,000 960,000 704,000 500,000 $ 204,000 The company's selling and administrative expenses consist of $300,000 per year in fixed expenses and $5 per unit sold in variable expenses. The $24 unit product cost given above is computed as follows: $ 11 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead (255,000+ 51,000 units) 5 Absorption costing unit product cost $ 24 Required: 1. Redo the company's income statement in the contribution format using variable costing. 2. Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above.

Explanation / Answer

Variable costing income statement :

Reconciliation :

Sales 1664000 Less: Variable cost of goods sold Direct material (40000*11) 440000 Direct labour (40000*4) 160000 Variable manufacturing overhead 160000 Total variable cost of goods sold 760000 Manufacturing margin 904000 Variable selling and administrative expense 200000 Contribution margin 704000 Fixed cost Fixed manufacturing overhead 255000 Fixed selling and administrative expense 300000 Total fixed cost 555000 Net operating income 149000

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