Whitman Company Income Statement
Amount
$
Sales (48,500 units x $33 per unit)
1,600,500
Cost of goods sold (48,500 units x $25 per unit)
1,212,500
Gross margin
388,000
Selling and administrative expenses
324,000
Net operating income
$ 64,000
The company's selling and administrative expenses consist of $227,000 per year in fixed expenses and $2 per unit sold in variable
expenses. The $25 unit product cost given above is computed as follows:
Direct materials
$8
Direct labor
9
Variable overhead
3
Fixed overhead ($242,500 \div 48,500 units)
5
Unit product cost (under traditional costing)
$ 25
Required:
1. Prepare a contribution format income statement for the year ended December 31.
2. What was the contribution toward fixed expenses and profits for each unit sold? (State this figure in a single dollar amount per
snowboard.)
3. What would operating income be if only 40,500 units were sold in a quarter? You can assume no change to fixed expenses will
occur if sales decline to 28,500 units. (Hint: You don't need to prepare a new income statement to determine the answer.)
