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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 $40.60 per unit) Cost of goods sold (40,000 units x $23 per unit) Gross margin Selling and administrative expenses Net operating income $ 1,624,000 920,000 704,000 460,000 $ 244,000 The company's selling and administrative expenses consist of $300,000 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 Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($260,000 52,000 units) Absorption costing unit product cost $ 12 3 3 5 $ 23 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.

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 $40.60 per unit) Cost of goods sold (40,000 units x $23 per unit) Gross margin Selling and administrative expenses Net operating income $ 1,624,000 920,000 704,000 460,000 $ 244,000 The company's selling and administrative expenses consist of $300,000 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 Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($260,000 52,000 units) Absorption costing unit product cost $ 12 3 3 5 $ 23 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.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ces 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 $40.60 per unit) Cost of goods sold (40,000 units x $23 per unit) Gross margin Selling and administrative expenses Net operating income The company's selling and administrative expenses consist of $300,000 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 Direct labor $1,624,000 920,000 704,000 460,000 $ 244,000 Variable manufacturing overhead Fixed manufacturing overhead ($260,000+ 52,000 units) Absorption costing unit product cost $ 12 3 3 $ 23 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.
Transcribed Image Text:ces 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 $40.60 per unit) Cost of goods sold (40,000 units x $23 per unit) Gross margin Selling and administrative expenses Net operating income The company's selling and administrative expenses consist of $300,000 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 Direct labor $1,624,000 920,000 704,000 460,000 $ 244,000 Variable manufacturing overhead Fixed manufacturing overhead ($260,000+ 52,000 units) Absorption costing unit product cost $ 12 3 3 $ 23 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.
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