Exercise 4-12 (Algo) Variable Costing Income Statement; Reconciliation [LO4-2, LO4-3]

Whitman Company has just completed its first year of operations. The companys absorption costing income statement for the year follows:

Whitman Company
Income Statement
Sales (40,000 units $40.60 per unit)	$ 1,624,000
Cost of goods sold (40,000 units $24 per unit)	960,000
Gross margin	664,000
Selling and administrative expenses	500,000
Net operating income	$ 164,000

The companys selling and administrative expenses consist of $300,000 per year in fixed expenses and $5 per unit sold in variable expenses. The $24 unit product cost given above is computed as follows:

Direct materials	$ 11
Direct labor	3
Variable manufacturing overhead	4
Fixed manufacturing overhead ($306,000 51,000 units)	6
Absorption costing unit product cost	$ 24

Required:

1. Redo the companys 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.