7 Variable Costing Income Statement; Reconciliation [ LO2 , LO3 ] 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 (35,000 units $25 per unit) $875,000 Cost of goods sold (35,000 units $16 per unit) 560,000 Gross margin 315,000 Selling and administrative expenses 280,000 Net operating income $ 35,000
The company’s selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows:
Direct materials $ 5 Direct labor 6 Variable manufacturing overhead 1 Fixed manufacturing overhead ($160,000 40,000 units) 4 Absorption costing unit product cost $16
Required: 1. Redo 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 above.