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Whitman Company has just completed its first year of operations. The companys absorption costing income...

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Accounting

Whitman Company has just completed its first year of operations. The companys absorption costing income statement for the year follows:

Whitman Company Income Statement
Sales (39,000 units $42.10 per unit) $ 1,641,900
Cost of goods sold (39,000 units $23 per unit) 897,000
Gross margin 744,900
Selling and administrative expenses 448,500
Net operating income $ 296,400

The companys selling and administrative expenses consist of $292,500 per year in fixed expenses and $4 per unit sold in variable expenses. The $23 unit product cost given above is computed as follows:

Direct materials $ 11
Direct labor 4
Variable manufacturing overhead 3
Fixed manufacturing overhead ($240,000 48,000 units) 5
Absorption costing unit product cost $ 23

Required:

  1. Redo the companys 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.
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