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Managerial Accounting (Absorption Costing & Variable Costing)

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.

Whitman Company
Income Statement
Sales (39,000 units Ã? $44.6 per unit) $1,739,400
Cost of goods sold (39,000 units Ã? $21 per unit)

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


Requirement 1:

Redo the company's income statement in the contribution format using variable costing. (Input all amounts as positive values.

Requirement 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.


Solution Summary

The solution discusses managerial accounting including absorption costing, and variable costing.