ACC – Whitney Company

| June 14, 2016

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.

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

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

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