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 (38,000 unitsx $42.10 per unit) Cost of goods sold (38,000 units x $19 per unit) Gross margin Selling and administrative expenses Net operating income $1,599, 800 722,000 877,800 399,000 $ 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 $19 unit product cost given above is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($196,00049,000 units) Absorption costing unit product cost $ 10 2 s19 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

2) Variable costing income statement :

Reconciliation :

Sales 1599800 Less:Variable cost of goods sold (38000*15) (570000) Less: Variable selling and administrative exp (38000*3) (114000) Total variable cost (684000) Contribution margin 915800 Less: Fixed manufacturing cost (196000) Less: Fixed selling and administrative exp (285000) Total fixed expense (481000) Net operating income 434800

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