Question

Data Table סבtelr - OT aata 100 0 Beginning inventory 600 700 Production 660 600 Sales Variable costs: 9,500 $ 9,500 Manufacturing cost per unit produced 3,800 3,800 Operating (marketing) cost per unit sold Fixed costs: $2,100,000 $ 2,100,000 Manufacturing costs Operating (marketing) costs 550,000 550,000 The selling price per vehicle is $27,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 700 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. April 2017 May 2017 $16,200,000 Revenues $17,820,000 Variable costs: Beginning inventory 0 950,000 6,650,000 5,700,000 Variable manufacturing costs Cost of goods available for sale 6,650,000 6,650,000 (950,000) (380,000) Less: Ending inventory Variable cost of goods sold 5,700,000 6,270,000 2,280,000 2,508,000 Variable operating costs 7,980,000 8,778,000 Total variable costs Contribution margin 8,220,000 9,042,000 Fixed costs: Fixed manufacturing costs 2,100,000 2,100,000 550,000 550,000 Fixed operating costs 2,650,000 Total fixed costs 2,650,000 $ 5,570,000 $ 6,392,000 Operating income e inp May 2017 April 2017 $ 16,200,000 $17,820,000 Revenues Cost of goods sold: $ 1,250,000 Beginning inventory am 5,700,000 6,650,000 Variable manufacturing costs 1,800,000 t, t 2,100,000 Allocated fixed manufacturing costs 8,750,000 8,750,000 Cost of goods available for sale (500,000) Less: Ending inventory (1,250,000) 300,000 0 Adjustment for production-volume variance 7,500,000 8,550,000 Cost of goods sold Gross margin 8,700,000 9,270,000 Operating costs: Variable operating costs 2,280,000 2,508,000 550,000 550,000 Fixed operating costs 2,830,000 3,058,000 Total operating costs $ 5,870,000 $ 6,212,000 Operating income X i Data Table May April Direct material cost per unit $ 6,600 $ 6,600 Direct manufacturing labor cost per unit 1,800 1,800 Manufacturing overhead cost per unit 1,100 1,100 - X i Requirements 1. Prepare income statements for Champion 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 Champion Motors to adopt throughput costing.

Answer 1

Ques 1
1	Apr-14		May-14
Revenues		$         16,200,000		$            17,820,000
Direct material cost of goods sold
Beginning inventory	$                            -		$               660,000
Direct materials in goods manufactured	$             4,620,000		$           3,960,000
Cost of goods available for sale	$             4,620,000		$           4,620,000
Deduct ending inventory	$              (660,000)		$             (264,000)
Total direct material cost of goods sold		$           3,960,000		$              4,356,000
Throughput margin		$         12,240,000		$            13,464,000
Other costs
Manufacturing costs	$             4,130,000		$           3,840,000
Other operating costs	$             2,830,000		$           3,058,000
Total other costs		$           6,960,000		$              6,898,000
Operating income		$           5,280,000		$              6,566,000
Ques 2
	April	May
Variable costing	$             5,570,000	$           6,392,000
Absorption costing	$             5,870,000	$           6,212,000
Throughput costing	$             5,280,000	$           6,566,000
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

a.	600*27000	$ 16,200,000
	660*27000	$ 17,820,000
b	6600*0	$                   -
	6600*100	$        660,000
c	6600*700	$    4,620,000
	6600*600	$    3,960,000
d	100*6600	$        660,000
	40*6600	$        264,000
e	(2900*700+2100000	$    4,130,000
	(2900*600+2100000	$    3,840,000
f	3800*600+550000	$    2,830,000
	3800*660+550000	$    3,058,000

1800+1100=2900

Ques 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.