Whinan Company has hist completed ts finst year of operatons. The company\'s abs

Question

Whinan Company has hist completed ts finst year of operatons. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement $ 1,726,200 Sales (42,000 unitsx $41.10 per unit) Cost of goods sold (42,000 units x $26 per unit) 1,092,000 Gross margin Selling and administrative expenses 634,200 525,000 Net operating income S 109.200 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 $26 per unit product cost given above is computed as follows: $ 12 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($245,000 49,000 units) Absorption costing unit product cost $ 26 Required: 1. Prepare the company's income statement in the contribution format using variable costing. Whitman Company Variable Costing Income Statement Variable expenses: Variable cost of goods sold Variable selling and administrative Contribution loss Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative

Explanation / Answer

Sales = 1,726,200$

Variable Expenses:

Variable cost of goods sold = 5 * 42000 = 210,000$

Variable selling and administation = total - fixed selling and adm = 525,000 - 315,000 = 210,000$

Contribution Loss

Fixed Expenses:

Fixed manufacturing overhead = 5 * 42000 = 210,000$

Fixed selling anda dministrative = 315,000$

Variable costing net operating income = sales - variable cost = 1,726,200 - (26-5)*42000 = 1,726,200 -882,000 = 834,200$.

Absorption costing net operating income = sales - absorption cost = 1,726,200 - 26*42000 = 1,726,200-1,092,000= 634,200$

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