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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:


Whitman Company
Income Statement
Sales (39,000 units × $43.10 per unit) $ 1,680,900
Cost of goods sold (39,000 units × $22 per unit)   858,000
Gross margin   822,900
Selling and administrative expenses   448,500
Net operating income $ 374,400


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 $22 per unit product cost given above is computed as follows:


Direct materials $ 10
Direct labor   5
Variable manufacturing overhead   3
Fixed manufacturing overhead ($220,000 ÷ 55,000 units)   4
Absorption costing unit product cost $ 22


Pl make the co's income statement :

1. Prepare the company’s income statement in the contribution format using variable costing.

                                               White Comany

                                 Variable costing income statement

Variable Expenses

Fixed Expenses



 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.

Reconciliation of variable costing and absorption costing net operating income

variable costing net operating income ( loss)

Absorption costing net operating income (loss0

During Heaton Company’s first two years of operations, the company reported absorption costing net operating income as follows:


  Year 1   Year 2
Sales (@ $63 per unit) $ 1,197,000     $ 1,827,000  
Cost of goods sold (@ $38 per unit)   722,000       1,102,000  
Gross margin   475,000       725,000  
Selling and administrative expenses*   303,000       333,000  
Net operating income $ 172,000   $ 392,000  


* $3 per unit variable; $246,000 fixed each year. 

The company’s $38 unit product cost is computed as follows: 


Direct materials $ 5  
Direct labor   10  
Variable manufacturing overhead   4  
Fixed manufacturing overhead ($456,000 ÷ 24,000 units)   19  
Absorption costing unit product cost $ 38  


Forty percent of fixed manufacturing overhead consists of wages and salaries; the remainder consists
of depreciation charges on production equipment and buildings. 

Production and cost data for the two years are:


  Year 1   Year 2
Units produced   24,000       24,000  
Units sold   19,000       29,000  



3-Prepare a variable costing contribution format income statement for each year.



4-. Reconcile the absorption costing and the variable costing net operating income figures for each year.


Piedmont Company segments its business into two regions—North and South. The company prepared the contribution format segmented income statement shown below:


  North   South
Sales $ 675,000 $ 450,000 $ 225,000
Variable expenses   405,000   315,000   90,000
Contribution margin   270,000   135,000   135,000
Traceable fixed expenses   150,000   75,000   75,000
Segment margin   120,000 $ 60,000 $ 60,000
Common fixed expenses   65,000        
Net operating income $ 55,000        



5- Compute the companywide break-even point in dollar sales.



2. Compute the break-even point in dollar sales for the North region.



6- Compute the break-even point in dollar sales for the South region.



Solution details:


This question was answered on: Sep 05, 2019

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