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Managerial Accounting (Absorption Costing & Variable Costing)

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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.

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Solution Summary

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

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