Question
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 (39,000
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 (39,000 units $41.60 per unit)$1,622,400Cost of goods sold (39,000 units $23 per unit)897,000Gross margin725,400Selling and administrative expenses448,500Net operating income$276,900
The company's selling and administrative expenses consist of $292,500 per year in fixed expenses and $4 per unit sold in variable expenses. The $23 unit product cost given above is computed as follows:
Direct materials$10Direct labor4Variable manufacturing overhead3Fixed manufacturing overhead ($300,000 50,000 units)6Absorption costing unit product cost$23
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.
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