Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below:
Whitman Company Income Statement Sales (41,000 units × $44.60 per unit) $ 1,828,600 Cost of goods sold (41,000 units × $23 per unit) 943,000 Gross margin 885,600 Selling and administrative expenses 471,500 Net operating income $ 414,100
The company's selling and administrative expenses consist of $307,500 per year in fixed expenses and $4 per unit sold in variable expenses. The $23 per unit product cost given above is computed as follows:
Direct materials $ 10 Direct labor 4 Variable manufacturing overhead 3 Fixed manufacturing overhead ($294,000 ÷ 49,000 units) 6 Absorption costing unit product cost $ 23
1. Prepare the company's 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.