Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below:
Please see the attachment for better layout.
Gross margin 920,400
Selling and administrative expenses
Net operating income
The company's selling and administrative expenses consist of $292,500 per year in fixed expenses and $4 per unit sold in variable expenses. The $21 per unit product cost given above is computed as follows:
Direct materials $9
Direct labor 3
Variable manufacturing overhead 3
Fixed manufacturing overhead ($306,000 ÷ 51,000 units)
Absorption costing unit product cost
Redo the company's income statement in the contribution format using variable costing. (Input all amounts as positive values.
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.
The solution discusses managerial accounting including absorption costing, and variable costing.