Variable Costing Income Statement; Reconciliation

Morey Company has just completed its first year of operations. The company’s absorption costing income statement for the year appears below:

 

 

 

Sales (40,000 units at $33.75 per unit) . . . . . . . . . . . . . . . . . . . . . .	$1,350,000
Cost of goods sold (40,000 units × $21 per unit) . . . . . . . . . . . . . .	840,000
Gross margin  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	510,000
Selling and administrative expenses  . . . . . . . . . . . . . . . . . . . . . . .	420,000
Net operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	$     90,000

 

The company’s selling and administrative expenses consist of $300,000 per year in fixed expenses and $3 per unit sold in variable expenses. The company’s $21 per unit product cost given above is computed as follows:

 

 

 

 

 

Required:

1.       Redo the company’s income statement in the contribution format using variable costing.

2.       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.