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 (39,080 units x $44.60 per unit) Cost of goods sold (39,000 units x $24 per unit) Gross margin selling and administrative expenses Net operating income $1,739,400 936,000 803,400 487,500 $315,900 The company's selling and administrative expenses consist of $292 500 per year in fixed expenses and $5 per unit sold in variable expenses. The $24 unit product cost given above is computed as follows: $12 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($230,0e0+46,000 units) Absorption costing unit product cost 5 24

Explanation / Answer

Income statement under variable costing :

Reconciliation :

Sales 1739400 Less Variable expenses Variable cost of goods sold (39000*19) (741000) Variable selling and administrative expense (39000*5) (195000) Total variable expense (936000) Contribution margin 803400 Less: Fixed expense Fixed manufacturing cost (230000) Fixed selling and administrative expense (292500) Total fixed expense (522500) Net operating income 280900

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