Exercise 6-12 Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3] W
ID: 2531270 • Letter: E
Question
Exercise 6-12 Variable Costing Income Statement; Reconciliation [LO6-2, LO6-3]
Whitman Company has just completed its first year of operations. The company’s absorption costing income statement for the year follows:
The company’s selling and administrative expenses consist of $315,000 per year in fixed expenses and $3 per unit sold in variable expenses. The $22 unit product cost given above is computed as follows:
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.
Whitman CompanyIncome Statement Sales (42,000 units × $40.60 per unit) $ 1,705,200 Cost of goods sold (42,000 units × $22 per unit) 924,000 Gross margin 781,200 Selling and administrative expenses 441,000 Net operating income $ 340,200
Explanation / Answer
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.
Sales 1705200 Less; Variable cost of goods sold Direct material (42000*10) 420000 Direct labour 210000 Variable manufacturing overhead 84000 Total variable cost of goods sold 714000 Manufacturing margin 991200 Variable selling and administrative expense 126000 Contribution margin 865200 Fixed expense Fixed manufacturing overhead 245000 Fixed selling and administrative expense 315000 Total fixed expense 560000 Net operating income 305200