Reference no: EM132010838

Problem - 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.