Whitman Company has just completed its first year of operations. The company’s a

Question

Whitman Company has just completed its first year of operations. The company’s absorption costing income statement for the year appears below: Whitman Company Income Statement Sales (39,000 units × $43.10 per unit) $ 1,680,900 Cost of goods sold (39,000 units × $21 per unit) 819,000 Gross margin 861,900 Selling and administrative expenses 409,500 Net operating income $ 452,400 The company’s selling and administrative expenses consist of $292,500 per year in fixed expenses and $3 per unit sold in variable expenses. The $21 per unit product cost given above is computed as follows: Direct materials $ 10 Direct labor 4 Variable manufacturing overhead 2 Fixed manufacturing overhead ($245,000 ÷ 49,000 units) 5 Absorption costing unit product cost $ 21 Required: 1. Prepare the company’s income statement in the contribution format using variable costing. 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.

Explanation / Answer

Income Statement under variable costing Sales 39000 43.1 1680900 Variable cost 39000 19 -741000 Contribution 39000 24.1 939900 Less: Fixed Cost 537500 Net operating income 402400 NOI-absorption 452400 Deferred cost in inventory 50000 10000*5 (49000-39000)*5

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