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 (42,000 units * $43.10 per unit) Coat of goods sold (42,000 units * $22 per unit) Gross margin Selling and administrative expenses Net operating income $1,810,200 924,000 886,200 483.000 $ 403,200 The company's selling and administrative expenses consist of $315,000 per year in fixed expenses and $4 per unit sold in variable expenses. The $22 unit product cost given above is computed as follows: 11 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($240,000 - 48,000 units) Absorption costing unit product cost 3 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. Complete this question by entering your answers in the tabs below.

Answer 1

Income Statement as per Variable Costing
Sales(42,000 units*$43.10)		$      18,10,200
Less:Variable expenses:
Direct Materials	$             4,62,000
Direct labor	$             1,26,000
Manufacturing Overhead	$             1,26,000
Selling and administrative expenses	$             1,68,000
Total Variable Costs		$        8,82,000
Contribution Margin		$        9,28,200
Less:Fixed expenses:
Manufacturing Overhead	$             2,40,000
Selling and administrative expenses	$             3,15,000
Total Fixed Costs		$        5,55,000
Net Operating Income		$        3,73,200
Reconciliation Statement
Net Income under Variable costing	$             3,73,200
Add:Fixed Manufacturing Overhead carried forward	$                30,000
($240,000/48,000 units)*6,000 units
	$             4,03,200