Question

Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year follows: $1,704,000 Whitman Company Income Statement Sales (40,000 units X $42.60 per unit) Cost of goods sold (40,000 units X $23 per unit) Gross margin Selling and administrative expenses Net operating income 920,000 784,000 420,000 364,000 The company's selling and administrative expenses consist of $300,000 per year in fixed expenses and $3 per unit sold in variable expenses. The $23 unit product cost given above is computed as follows: $12 2 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($245,000 49,000 units) Absorption 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. Complete this question by entering your answers in the tabs below. Required Required Redo the company's income statement in the contribution format using variable costing. Whitman Company Variable Costing Income Statement 0 $ Required 1 Required 2 >

Answer 1

Variable costing Income Statement
Sales		1704000
Variable expenses:
Variable cost of goods sold	720000		=40000*(12+4+2)
Variable selling and administrative expenses	120000		=40000*3
		840000
Contribution margin		864000
Fixed expenses:
Fixed manufacturing overhead	245000
Fixed selling and administrative expenses	300000
		545000
Net operating income		319000
2
Variable costing net operating income	319000
Add: Fixed manufacturing overhead deferred in inventory under absorption costing	45000		=(49000-40000)*5
Absorption costing net operating income	364000