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 $292,500 per year in fixed expenses and $4 per unit sold in variable expenses. The $22 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 (39,000 units × $40.60 per unit) $ 1,583,400 Cost of goods sold (39,000 units × $22 per unit) 858,000 Gross margin 725,400 Selling and administrative expenses 448,500 Net operating income $ 276,900

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 1583400 Variable cost Variable cost of goods sold (39000*17) (663000) Variable selling and administrative expense (39000*4) (156000) (819000) Contribution margin 764400 Fixed cost Fixed manufacturing cost (250000) Fixed selling and administrative expense (292500) (542500) Net operating income 221900

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