Question

Amazing Screen Corporation manufacturers and sells 50-inch Television sets and uses standard costing. Actual data relating to January, February, and March is attached.

4 of 5 (0 complete) Data Table Is 50-inch television sets and ing Screen Corporation are as fo ing cost data) January evel of production used to calc spending variances. Any prod February March Unit data: Beginning inventory atements under vanable costinga Jement) tatement.) Production 150 925 1,000 850 150 1,025 1,050 925 azing Screen in January Feb then the bottom portion. (En January 2017 Sales Variable costs Manufacturing cost per unit produced Operating (marketing) cost per unit sold Fixed costs Manufacturing costs Operating (marketing) costs 800 $ 575 $ $ 800 $ 575 $ 800 575 $ $ 480,000 $ 180,000 $ 480,000 $ 180,000 $ 480,000 180,000 Print Done

The selling price per unit is $3,500. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 1,000 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.

The variable manufacturing cost per u it of Amazing Screen Corporation are attached below.

Amazing Screen prepared the following income statements under variable costing and absorption costing.

Variable costing

Absorption costing

1. Prepare income statements for Amazing Screen in January, February, and March 2017 under throughput costing.
2. Contrast the results in requirement 1 with the operating income results under variable costing and absorption costing.
3. Give one motivation for Amazing Screen to adopt throughput costing.

Answer 1

Answer is given below

Profit reconciliation is done as per all three methods . Difference in profit is due to method of closing stock valuation

Amazing Screen Corporation Income Statement Throughput Costing January February 150 1,000 925 Opening stock Production units Sales Closing stock Selling price per unit 850 925 March 150 1,025 1,050 125 $3,500 150 $3,500 150 $3,500 $2,975,000 $3,237,500 $3,675,000 $31,500 $31,500 Sales Less : Variable Cost of Goods Sold Beginning FG Inventory Variable Cost of Goods manufactured Direct Material cost Cost of Goods available for sale Less: Closing Stock ( valued at Direct Material cost) Variable Cost of Goods Sold Variable Operating cost Contribution Margin $210,000 $210,000 $31,500 $194,250 $225,750 $31,500 $215,250 $246,750 $26,250 $178,500 $488,750 $2,307,750 $194,250 $531,875 $2,511,375 $220,500 $603,750 $2,850,750 Fixed Cost Fixed Manufacturing Cost Direct Manufacturing labor Manufacturing overheads ( Variable part) Manufacturing overheads (Fixed part) Fixed Operating Marketing cost) Total fixed costs Operating profit $250,000 $340,000 $480,000 $180,000 $231,250 $314,500 $480,000 $180,000 $1,205,750 $1,305,625 $256,250 $348,500 $480,000 $180,000 $1,250,000 $1,057,750 $1,264,750 $1,586,000 February $1,305,625 March $1,559,250 2 Reconciliation of Profit - Variable Costing and Absorption Costing and Throughput Costing January Profit as per Absorption Costing $1,218,250 Difference in closing stock Closing stock as per Absorption costing $192,000 Closing stock as per Variable costing $120,000 Difference -$72,000 $192,000 $120,000 $72,000 $160,000 $100,000 $60,000 Difference in Opening stock Opening stock as per Absorption Costing Opening stock as per Variable Costing Difference $192,000 $120,000 $72,000 $192,000 $120,000 $72,000 Profit as per Variable costing $1,146,250 $1,305,625 $1,571,250 Difference in closing stock Closing stock as per Variable costing Closing stock as per Throughput costing Difference $120,000 $31,500 -$88,500 $120,000 $31,500 -$88,500 $100,000 $26,250 -$73,750 Difference in Opening stock Opening stock as per Variable costing Opening stock as per Throughput costing Difference $120,000 $31,500 $88,500 $120,000 $31,500 $88,500 Profit as per throughput Costing $1,057,750 $1,305,625 $1,586,000 Reason for difference in profit Absorption Costing Variable Costing Throughout Costing Inventory is valued at Total manufacturing cost including Fixed manufacturing cost Inventory is valued at Total variable manufacturing cost Inventory is value at Direct Material cost 3 One motivation for Amazing Screen to adopt Throughput Costing -Less incentive to produce inventory and manage production better