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: Income Statement Sales (38,000 units $45.10 per unit) Cost of goods sold (38,000 units x $22 per unit) Gross margin Selling and administrative expenses Net operating income $1,713,800 836,000 877,800 399,000 s 478, 800 The company's selling and administrative expenses consist of $285,000 per year in fixed expenses and $3 per unit sold in variable expenses. The $22 unit product cost given above is computed as follows: s 11 Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($260,000 + 52,000 units) Absorption costing unit product cost s 22 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. Complete this question by entering your answers in the tabs below. Required 1 Required 2

Explanation / Answer

Whitman Company Variable costing Income Statement Particulars Amount($) Amount($) Sales(38000units * $45.10 per unit) 1713800 Variable Expenses: Variable Cost of good sold($[11+4+2]*38000units) 646000 Variable Selling & Adminitrative Expenses($3*38000units) 114000 760000 Contribution Margin 953800 Fixed Expenses: Fixed Manufacturing Overhead 260000 Fixed Selling & Adminitrative Expenses 285000 545000 Net Operating Income 408800 Reconciliation of Variable Costing and Absorption Costing Net Operating Income Particulars Amount($) Amount($) Variable costing Net Operating Income 408800 Add: Fixed Manufacturing Overhead cost deferred in inventory($5*[52000-38000units]) 70000 Absorption Costing Net Operating Income 478800

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