Whitman Company has just completed its first year of operations. The companys absorption costing income...
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Whitman Company has just completed its first year of operations. The companys absorption costing income statement for the year follows:
Whitman Company Income Statement
Sales (41,000 units $44.10 per unit)
$ 1,808,100
Cost of goods sold (41,000 units $21 per unit)
861,000
Gross margin
947,100
Selling and administrative expenses
471,500
Net operating income
$ 475,600
The companys selling and administrative expenses consist of $307,500 per year in fixed expenses and $4 per unit sold in variable expenses. The $21 unit product cost given above is computed as follows:
1. Redo the companys 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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