Question

Nascar Motors assembles and sells motor vehicles and uses standard costing. Actual data and variable costing and absorption costing income statements relating to April and May 2017 are attached in photos.

Data Table ndard costing. Actual follows: scar Motors are as follows: furing costs per unit.) 5) ents.) April and May 2017 tom portion (Comple 2017 April May Unit data: Beginning inventory Production 600 Sales 450 Variable costs Manufacturing cost per unit produced $ 11,500 $ 11,500 Operating (marketing) cost per unit sold 2,200 2.200 Fixed costs Manufacturing costs $ 2,400,000 $ 2,400,000 Operating (marketing) costs 750,000 750,000 The selling price per vehicle is $26,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 600 units. There are no price, efficiency, or spending variances. Any production volume variance is written off to cost of goods sold in the month in which it occurs Print Done nd then click Check Answer.

The variable manufacturing cost per unit of Nascar Motors are as follows:

                                                                             April    May
Direct material cost per unit                     $6,500   6,500
Direct manufacturing labor cost per unit 1,800 1,800
Manufacturing overhead cost per unit     3,200   3,200

1. Prepare income statements for Nascar Motors in April and May 2017 under throughput costing.
2. Contrast the results in requirement 1 with the absorption and variable costing income statements presented.
3. Give one motivation for Nascar Motors to adopt throughput costing.

Answer 1

Part 1

	April 2017	May 2017
Revenues		11700000		17550000
Beginning inventory	0		975000
Direct materials in goods manufactured (6500*600); (6500*550)	3900000		3575000
Cost of goods available for sale	3900000		4550000
Deduct ending inventory (6500*(600-450); (6500*(150+550-675))	(975000)		(162500)
Total direct material cost of goods sold		2925000		4387500
Throughput margin		8775000		13162500
Manufacturing costs ((5000*600)+2400000); ((5000*550)+2400000)		5400000		5150000
Other operating costs ((2200*450)+750000); ((2200*675)+750000)		1740000		2235000
Operating income		1635000		5777500

Part 2

	April	May
Variable costing	2385000	5152500
Absorption costing	2985000	4652500
Throughput costing	1635000	5777500

In April, throughput costing has the lowest operating income, whereas in May throughput costing has the highest operating income. Throughput costing puts greater emphasis on sales as the source of operating income than does either absorption or variable costing.

Part 3

Throughput costing puts a penalty on production without a corresponding sale in the same period. Costs other than direct materials that are variable with respect to production are expensed in the period of incurrence, whereas under variable costing they would be capitalized. As a result, throughput costing provides less incentive to produce for inventory than either variable costing or absorption costing.