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 follows:

The company’s selling and administrative expenses consist of $307,500 per year in fixed expenses and $4 per unit sold in variable expenses. The $21 unit product cost given above is computed as follows:

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.

Whitman Company
Income Statement Sales (41,000 units × $42.10 per unit) $ 1,726,100 Cost of goods sold (41,000 units × $21 per unit) 861,000 Gross margin 865,100 Selling and administrative expenses 471,500 Net operating income $ 393,600

Explanation / Answer

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

Sales 1726100 Variable cost of goods sold (17*41000) (697000) Variable selling and administrative expense (41000*4) (164000) Total variable cost (861000) Contribution margin 865100 Less: Fixed manufacturing overhead (216000) Less: Fixed selling and administrative expense (307500) Total fixed expense (523500) Net operating income 341600

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