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Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement
Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement 1,661,400 Sales (39,000 units * $42.60 per unit) Cost of goods sold (39,000 units * $23 897,000 per unit) 764,400 448,500 Gross margin Selling and administrative expenses Net operating income $ 315,900 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 per unit product cost given above is computed as follows: $ Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($230,000 46,000 units) $ 11 4 3 Absorption costing unit product cost 23 $ Required: 1. Prepare the company's income statement in the contribution format using variable costing. Whitman Company Variable Costing Income Statement Sales Variable expenses: Variable cost of goods sold Variable selling and administrative 0 Fixed expenses: Fixed manufacturing overhead Fixed selling and administrative Net operating income 0 $ 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) Absorption costing net operating income (loss) $ 0
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