Thank you! Whitman Company has just completed its first year of operations The c

Question

Thank you! Whitman Company has just completed its first year of operations The company's absorption costing income statement for the year appears below Whitman Company 5 1.583 400 Cost of goods sold (39,000 units x $24 per unit)936,000 647 400 448,500 Sales (39,000 units x $40 60 per unit) Gross margin Selling and administrative expenses Net operating income 5 198,900 The company's selling and administrative expenses consist of $292 500 per year in fixed expenses and $4 per unil sold in variable expenses. The $24 per unit product cost given above is computed as follows S 12 Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($188,000 47,000 units) Absorption costing unit product cost $24 Required: 1. Prepare the company's income statement in the contribution format using vaniable costing Variable Costing Income 5 1.583 Variable expenses Variable cost of goods sold Variable selling and administrative tribution margin 1.583.400 Fixed expenses Fixed manufacturing overhead Fixed selling and administrative 292 500 292 500 operating income S 1,290,900 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 stalement Variable costing net operating income (loss) Fixed manufacturing overhead cost defenred in inventory under absorption costing Absorption costing net operating income (loss)

Explanation / Answer

Income Statement ( Variable costing approach)

NOTE : Under the heading variable expenses, we have to show sub - items as Materials, labor and variable Manufacturing overheads seperately. If your format does not contain these terms, then aggregate ( add up ) these three elements and show it as Variable cost of goods sold = 780000

Reconciliation

Sales 1583400 Variable expenses Direct Materials 468000 Direct labor 195000 Variable Manufacturing 117000 Variable selling and adm 156000 Total variable expenses 936000 Contribution Margin 647400 Fixed expenses Fixed Manufacturing 188000 Fixed selling 292500 Total Fixed expenses 480500 Net Income 166900

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