Question

Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement Sales (41,000 units * $41.10 per unit) Cost of goods sold (41,000 units * $24 per unit) $ 1,685,100 984,000 Gross margin Selling and administrative expenses 701,100 512,500 Net operating income $ 188,600 The company's selling and administrative expenses consist of $307,500 per year in fixed expenses and $5 per unit sold in variable expenses. The $24 per unit product cost given above is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($306,000 + 51,000 units) Absorption costing unit product cost Required: 1. Prepare the company's income statement in the contribution format using variable costing. Whitman Company Variable Costing Income Statement L Variable expenses: III. Fixed expenses: 1

Answer 1

Solution

Whitman Corporation
Contribution Format Income Statement
Sales		$      1,685,100.00
Variable expenses:
Variable Cost of goods sold
Direct Material	$     451,000.00
Direct labor	$     123,000.00
Variable manufacturing overhead	$     164,000.00
Variable Selling and administrative expenses	$     205,000.00
Total Variable expenses		$         943,000.00
Contribution margin		$         742,100.00
Fixed expenses:
Fixed manufacturing expenses	$     306,000.00
Fixed Selling and administrative expenses	$     307,500.00
Total Fixed expenses		$         613,500.00
Net operating income		$         128,600.00

.

Variable costing net operating income	$ 128,600
Fixed manufacturing expense assigned to ending inventory	$ 60,000
Absorption costing net operating income	$ 188,600

In variable costing Fixed manufacturing cost is not considered as period cost.