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Whitman Company has just completed its first year of operations. The company’s absorption costing income statement...

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 (39,000 units × $42.60 per unit) $ 1,661,400
Cost of goods sold (39,000 units × $21 per unit) 819,000
Gross margin 842,400
Selling and administrative expenses 409,500
Net operating income $ 432,900

The company’s selling and administrative expenses consist of $292,500 per year in fixed expenses and $3 per unit sold in variable expenses. The $21 unit product cost given above is computed as follows:

Direct materials $ 12
Direct labor 3
Variable manufacturing overhead 2
Fixed manufacturing overhead ($196,000 ÷ 49,000 units) 4
Absorption costing unit product cost $ 21

Redo the company’s income statement in the contribution format using variable costing.

Whitman Company
Variable Costing Income Statement
0
0
0
$0

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. (Enter any losses or deductions as a negative value.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes
Variable costing net operating income
Absorption costing net operating income

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