Klumper Company has just completed its rst year of operations. The companys absorption costing income statement for the year appears below:

Morey Company Income Statement

Sales (40,000 units at $33.75 per unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,350,000

Cost of goods sold:

Beginning inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ Nil

Add cost of goods manufactured . . . . . . . . . . . . . . . . . . . . . . . 1,050,000

(50,000 units at $21 per unit)

Goods available for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,050,000

Less ending inventory (10,000 units at $21 per unit) . . . . . . . . . 210,000 840,000

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 510,000

Selling and administrative expenses . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . .420,000

Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . $ 90,000

The companys selling and administrative expenses consist of $300,000 per year in xed expenses and $3 per unit sold in variable expenses. The companys $21 per unit product cost given above is computed as follows:

Direct materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10

Direct labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Variable manufacturing overhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Fixed manufacturing overhead ($250,000 / 50,000 units) . . . . . . .. . . . 5

Unit product cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $21

Required: Redo the companys income statement in the contribution format using variable costing.