ACC – Whitney Company

| June 14, 2016

Question
Whitney Company has just completed its first year of operations. The company’s accountant has prepared an absorption costing income statement for the year as seen below:

Sales (35,000 units at $25) $875,000
Beginning Inventory 0
Cost of Goods Manufactured (35,000 × $12) + $160,000 = 580,000
Cost of Goods Available 580,000
Ending Inventory 0
Cost of Goods Sold 580,000
Gross Margin 295,000
Selling and Administrative Expenses 280,000
Net Income $15,000

The variable production costs per unit are determined as follows:
Direct materials $5
Direct labor 6
Variable production 1
Total variable production costs $12

The company’s fixed production costs are $160,000 per year. The company’s selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit in variable expenses.

Required:
Prepare the company’s income statement in the contribution format.

Required:
Compute the amount by which the operating income of Texas Company would change if the special order was accepted.

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