Question
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
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 (42,000 units $43.10 per unit) | $ | 1,810,200 |
Cost of goods sold (42,000 units $21 per unit) | 882,000 | |
Gross margin | 928,200 | |
Selling and administrative expenses | 441,000 | |
Net operating income | $ | 487,200 |
The companys selling and administrative expenses consist of $315,000 per year in fixed expenses and $3 per unit sold in variable expenses. The $21 per unit product cost given above is computed as follows: |
Direct materials | $ | 11 |
Direct labor | 4 | |
Variable manufacturing overhead | 2 | |
Fixed manufacturing overhead ($212,000 53,000 units) | 4 | |
Absorption costing unit product cost | $ | 21 |
Required: |
1. | Prepare the companys income statement in the contribution format using variable costing. |
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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.
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