Question

Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year follows: $1,685,100 Whitman Company Income Statement Sales (41,000 units X $41.10 per unit) Cost of goods sold (41,000 units x $21 per unit) Gross margin Selling and administrative expenses Net operating income 861,000 824, 100 430, 500 393.600 $ The company's selling and administrative expenses consist of $307,500 per year in fixed expenses and $3 per unit sold in variable expenses. The $21 unit product cost given above is computed as follows: $ 9 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($270,000 - 54,000 units) Absorption costing unit product cost 5 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 $ 0 Required Required 2 >

Answer 1

1. Whitman Company   

Variable Costing Income Statement

Particulars	Amount	Amount
Sales		$1,685,100
Variable Expenses;
Variable Cost of Goods Sold	$656,000
Variable Selling & Administrative	$123,000
		$779,000
Contribution Margin		$906,100
Fixed Expenses
Fixed Manufacturing Overhead	$270,000
Fixed Selling & Admi.Expense	$307,500
		$577,500
Net Operating Income		$328,600

Explanation;  

Sales = 41,000 × 41.10 = $1,685,10

Variable Expenses;

Variable Cost of Goods Sold = 41,000 * 16 = $656,000

Variable Selling & Administrative Expenses =41,000 * 3 = $123,000

2

Reconciliation of variable costing and Absorption Costing Net Operating Income

Variable Costing Net Operating Income	$328,600
Add: Fixed Manufacturing Overhead Cost defferred in Inventory under absorption costing	$65,000
Absorption costing net operating income	$393,600

Explanation;

=54,000 - 41,000 = 13,000 Unit × 5 = 65,000