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

Whitman Company Income Statement
Sales (40,000 units $41.60 per unit)	$	1,664,000
Cost of goods sold (40,000 units $21 per unit)		840,000
Gross margin		824,000
Selling and administrative expenses		460,000
Net operating income	$	364,000

The companys selling and administrative expenses consist of $300,000 per year in fixed expenses and $4 per unit sold in variable expenses. The $21 per unit product cost given above is computed as follows:

Direct materials	$	11
Direct labor		3
Variable manufacturing overhead		3
Fixed manufacturing overhead ($204,000 51,000 units)		4
Absorption costing unit product cost	$	21

1. Prepare the company's income statement in the contribution format using variable costing 1 the he format oosting Whitman Company Variable Costing Income Statement 1,664,000 Sales Variable expenses: Variable selling and administrative S 160,000 680,000 Variable cost of goods sold 840,000 824,000 Contribution margin Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative 824,000 Net operating income 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. Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Variable costing net operating income (loss) Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Absorption costing net operating income (loss)