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 × $43.60 per unit) Cost of goods sold (40,000 units x $20 per unit) Gross margin Selling and administrative expenses Net operating income $1,744,000 800,000 944,000 460,000 484,000 The company's selling and administrative expenses consist of $300,000 per year in fixed expenses and $4 per unit sold in variable expenses. The $20 unit product cost given above is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($200,000 Absorption costing unit product cost 50,000 units) 4 $ 20 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

1) Contribution format income statement :

2) Reconciliation :

Sales 1744000 Less; Variable cost of goods sold Direct material 360000 Direct labour 160000 Variable manufacturing overhead 120000 Total variable cost of goods sold 640000 Manufacturing margin 1104000 Variable selling and administrative expense 160000 Contribution margin 944000 Less; Fixed expense Fixed manufacturing overhead 200000 Fixed selling and administrative expense 300000 Total fixed cost 500000 Net operating income 444000

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