Whitman Company has just completed its fi rst year of operations. The company’s absorption costing income statement for the year appears below: Whiteman Company Income Statement Sales (35000 units) Rs.875,000

Whitman Company has just completed its fi rst year of operations. The company’s absorption costing income statement for the year appears below: Whiteman Company Income Statement Sales (35000 units) Rs.875,000 Cost of goods sold @ of Rs.16 per unit 560,000 Gross Profit 315,000 Selling and Administrative expenses 280,000 Net operating income 35,000 The company’s selling and administrative expenses consist of Rs.210,000 per year in fixed expenses and Rs.2 per unit sold in variable expenses. The Rs.16 per unit product cost given above is computed as follows: Direct Materials Rs.5 Direct Labour 6 Variable manufacturing overhead 1 Fixed manufacturing overhead (Rs.160,000 ÷ 40,000 units) 4 Absorption costing unit product cost 16 Required: Redo the company’s income statement in the contribution format using variable costing. 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.

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