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.