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

Whitman Company

Income StatementSales (40,000 units $42.10 per unit)$1,684,000Cost of goods sold (40,000 units $22 per unit)880,000Gross margin804,000Selling and administrative expenses500,000Net operating income$304,000

The company's selling and administrative expenses consist of $300,000 per year in fixed expenses and $5 per unit sold in variable expenses. The $22 unit product cost given above is computed as follows:

Direct materials $10Direct labor3Variable manufacturing overhead4Fixed manufacturing overhead ($270,000 54,000 units)5Absorption costing unit product cost$22

Required:

1. Redo the company's 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.

Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that it sells for $200. Data for last year's operations follow:

Units in beginning inventory0Units produced10,500Units sold8,400Units in ending inventory2,100Variable costs per unit:Direct materials$60Direct labor40Variable manufacturing overhead10Variable selling and administrative30Total variable cost per unit$140Fixed costs:Fixed manufacturing overhead$170,000Fixed selling and administrative340,000Total fixed costs$510,000

Required:

1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill.

2. Assume that the company uses variable costing. Prepare a contribution format income statement for last year.

3. What is the company's break-even point in terms of the number of barbecue grills sold?

Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow:

Units in beginning inventory0Units produced10,400Units sold9,000Units in ending inventory1,400Variable costs per unit:Direct materials$62Direct labor34Variable manufacturing overhead11Variable selling and administrative21Total variable cost per unit$128Fixed costs:Fixed manufacturing overhead$312,000Fixed selling and administrative515,000Total fixed costs $827,000

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one barbecue grill.

2. Assume that the company uses absorption costing. Prepare an income statement for last year.