Question

Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year follows: Whitman Company Income Statement Sales (41,000 units X $40.60 per unit) Cost of goods sold (41,000 units X $22 per unit) Gross margin Selling and administrative expenses Net operating income $1,664,600 902,000 762,600 430,500 $ 332, 100 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 $22 unit product cost given above is computed as follows: оо Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($235,000 + 47,000 units) Absorption costing unit product cost 5 $ 22 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.

please refer to the required for instructions

Answer 1

	Contribution Format Income Statement
	Sales		$      16,64,600
	Less:Variable Cost of goods sold:
	Direct materials(41000*$10)	$      4,10,000
	Direct labor(41000*$5)	$      2,05,000
	Variable manufacturing overhead(41000*$2)	$         82,000
	Variable Cost of goods sold		$        6,97,000
	Less:Variable Selling and administrative expenses(41000*$3)		$        1,23,000
	Contribution margin		$        8,44,600
	Less:Fixed expenses:
	Fixed manufacturing overhead	$      2,35,000
	Fixed Selling and administrative expenses	$      3,07,500
	Fixed expenses		$        5,42,500
	Net Income		$        3,02,100
	Net Income as per Absorption costing		$        3,32,100
	Net Income as per Variable costing		$        3,02,100
	Difference		$           30,000