Whitman Company has just completed its first year of operations. The company\'s
ID: 2554158 • Letter: W
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 (42,000 units × $44.10 per unit) Cost of goods sold (42,000 units x $23 per unit) Gross margin Selling and administrative expenses Net operating incomee $1,852,200 966,000 886,200 525,000 $ 361,200 The company's selling and administrative expenses consist of $315,000 per year in fixed expenses and $5 per unit sold in variable expenses. The $23 unit product cost given above is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($300,00050,000 units) Absorption costing unit product cost $ 10 3 $ 23 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 aboveExplanation / Answer
Answer
‘’Amount ($)’’ column is the Answer column to be filled in.
Units
per unit ($)
Amount ($)
Sales Revenue
42000
44.1
1852200
Less: Variable costs
Direct Material
42000
10
420000
Direct Labor
42000
3
126000
Manufacturing Overhead
42000
4
168000
Selling & Administrative expenses
42000
5
210000
Contribution margin
42000
22.1
$928200
Less: Fixed Cost
Manufacturing Overhead
300000
Selling & Administrative Overhead
315000
Net Operating Income
$313200
Capacity/Units produced is 50000 units, but only 42000 units are sold. Difference is due to fixed manufacturing overhead $6 per unit deferred for ending inventory of 8000 units under Absorption Costing.
Variable costing Net Operating Income
$313,200
Add: Fixed manufacturing Overhead of unsold units [8000 units]
$48,000 [8000 units x $6]
Absorption costing Net Operating Income
$361,200
Units
per unit ($)
Amount ($)
Sales Revenue
42000
44.1
1852200
Less: Variable costs
Direct Material
42000
10
420000
Direct Labor
42000
3
126000
Manufacturing Overhead
42000
4
168000
Selling & Administrative expenses
42000
5
210000
Contribution margin
42000
22.1
$928200
Less: Fixed Cost
Manufacturing Overhead
300000
Selling & Administrative Overhead
315000
Net Operating Income
$313200
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