Whitman Company has just completed its first year of operations. The company's traditional format income statement for the year follows: Whitman Company Income Statement Sales (35,000 units x $25 per unit) Cost of goods sold (35,000 units x $15 per unit) Gross margin Selling and administrative expenses Net operating income Amount $ 875,000 525,000 350,000 278,000 $ 72,000 The company's selling and administrative expenses consist of $208,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $15 unit product cost given above is computed as follows: Direct materials Direct labor Variable overhead Fixed overhead ($100,000 ÷ 50,000 units) Unit product cost (under traditional costing) $6 6 1 2 $15 Required: 1. Prepare a contribution format income statement for the year ended December 31. 2. What was the contribution toward fixed expenses and profits for each unit sold? (State this figure in a single dollar amount per snowboard.) 3. What would operating income be if only 26,000 units were sold in a quarter? You can assume no change to fixed expenses will occur if sales decline to 17,500 units. (Hint. You don't need to prepare a new income statement to determine the answer.)

Whitman Company has just completed its first year of operations. The company's traditional format income statement for the year follows: Whitman Company Income Statement Sales (35,000 units x $25 per unit) Cost of goods sold (35,000 units x $15 per unit) Gross margin Selling and administrative expenses Net operating income Amount $ 875,000 525,000 350,000 278,000 $ 72,000 The company's selling and administrative expenses consist of $208,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $15 unit product cost given above is computed as follows: Direct materials Direct labor Variable overhead Fixed overhead ($100,000 ÷ 50,000 units) Unit product cost (under traditional costing) $6 6 1 2 $15 Required: 1. Prepare a contribution format income statement for the year ended December 31. 2. What was the contribution toward fixed expenses and profits for each unit sold? (State this figure in a single dollar amount per snowboard.) 3. What would operating income be if only 26,000 units were sold in a quarter? You can assume no change to fixed expenses will occur if sales decline to 17,500 units. (Hint. You don't need to prepare a new income statement to determine the answer.)

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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