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 (39,000 units $42.10 per unit) | $ | 1,641,900 |
Cost of goods sold (39,000 units $26 per unit) | 1,014,000 | |
Gross margin | 627,900 | |
Selling and administrative expenses | 487,500 | |
Net operating income | $ | 140,400 |
The companys selling and administrative expenses consist of $292,500 per year in fixed expenses and $5 per unit sold in variable expenses. The $26 per unit product cost given above is computed as follows: |
Direct materials | $ | 11 |
Direct labor | 5 | |
Variable manufacturing overhead | 4 | |
Fixed manufacturing overhead ($324,000 54,000 units) | 6 | |
Absorption costing unit product cost | $ | 26 |
Required: |
1. | Prepare the companys 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. |
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