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 (41,000 units $43.60 per unit)

$ 1,787,600 Cost of goods sold (41,000 units $27 per unit)

1,107,000 Gross margin 680,600

Selling and administrative expenses 512,500

Net operating income $ 168,100

The companys selling and administrative expenses consist of $307,500 per year in fixed expenses and $5 per unit sold in variable expenses. The $27 unit product cost given above is computed as follows:

Direct materials $ 12 Direct labor

5 Variable manufacturing overhead

4 Fixed manufacturing overhead ($270,000 45,000 units)

6 Absorption costing unit product cost $ 27

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.