Answer:
Net operating income $ 35,000 on variable costing income statement
Net operating income $ 35,000 on absorption costing income statement
Explanation:
Whitman Company
Income Statement
Variable Costing
Sales (35,000 units × $25 per unit) $ 875,000
Variable Costs
Direct materials $ 5× 35,000 units $ 175,000
Direct labor $6× 35,000 units $ 210,000
Variable manufacturing overhead $1× 35,000 units $ 35000
Variable selling and administrative expenses $ 2× 35,000 units $ 70,000
Total Variable Costs = $ 14 * 35000 $ 490,000
Contribution Margin $ 385,000
Less
Fixed Overheads $4 * 35,000= $ 140,000
Fixed Selling and administrative expenses $280,000- $70,000= $ 210,000
Net operating income $ 35,000
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 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
