PLEASE ONLY USE THE FOLLOWING TEXT OPTIONS: Variable expenses: Fixed expenses: A

Question

PLEASE ONLY USE THE FOLLOWING TEXT OPTIONS:

Variable expenses:

Fixed expenses:

Administrative expenses

Advertising

Beginning merchandise inventory

Commissions

Depreciation

Ending merchandise inventory

Fixed manufacturing overhead

Fixed selling and administrative expense

Indirect labor

Indirect materials

Purchases

Sales

Variable cost of goods sold

Variable selling and administrative

Contribution margin

Gross margin

Exercise 6-12 Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] 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 (40,000 units x $43.60 per unit) Cost of goods sold (40,000 units x $23 per unit) Gross margin Selling and administrative expenses Net operating income $1,744,000 920,000 824,000 500,000 $ 324,000 The company's selling and administrative expenses consist of $300,000 per year in fixed expenses and $5 per unit sold in variable expenses. The $23 unit product cost given above is computed as follows Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($275,000 55,000 units) Absorption costing unit product cost $ 10 $ 23 Redo the company's income statement in the contribution format using variable costing Whitman Company Variable Costing Income Statement 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 Add: Fixed manufacturing overhead cost deferred in inventory under absorption costing Absorption costing net operating income S 249,000 75,000 S 324,000

Explanation / Answer

Sales 1744000 Variable expenses: Variable cost of goods sold 720000 Variable selling and administrative expenses 200000 Total Variable expenses 920000 Contribution margin 824000 Fixed expenses: Fixed manufacturing overhead 275000 Fixed selling and administrative expenses 300000 Total Fixed expenses 575000 Net operatimg income(loss) 249000 Variable costing net income 249000 Add fixed manufacturing overhead deferred in inventory 75000 Absorption costing net operating income 324000

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