49 krell corporation which uses throughput costing

This preview shows page 63 - 66 out of 83 pages.

49. Krell Corporation, which uses throughput costing, began operations at the start of the current year (20x1). Planned and actual production equaled 40,000 units, and sales totaled 35,000 units at $80 per unit. Cost data for 20x1 were as follows: Direct materials (per unit) $ 20 Conversion cost: Direct labor 215,000 Variable manufacturing overhead 340,000 Fixed manufacturing overhead 528,000 Selling and administrative costs: Variable (per unit) 8 Fixed 220,000 The company classifies direct materials as a throughput cost. Required: A. What is meant by the term "throughput costing"? B. Compute the cost of the company's year-end inventory. C. Prepare Krell's income statement for the year. LO: 1, 7 Type: RC, A Answer: A. Throughput costing is a technique that assigns only the unit-level spending amounts for direct costs as the cost of products or services. In this case, direct materials is the only item that qualifies as a throughput cost. B. Ending inventory: 0 + 40,000 units - 35,000 units = 5,000 units; 5,000 units x $20 = $100,000 C. Krell Corporation Throughput-Costing Income Statement For the Year Ended December 31, 20x1 Sales revenue (35,000 units x $80) $2,800,000
Less: Cost of goods sold (35,000 units x $20) 700,000 Gross margin $2,100,000 Less: Operating costs Direct labor $ 215,000 Variable manufacturing overhead 340,000 Fixed manufacturing overhead 528,000 Variable selling and administrative costs (35,000 units x $8) 280,000 Fixed selling and administrative costs 220,000 Total operating costs $1,583,000 Net income $ 517,000 Variable- and Absorption-Costing Income Statements, Volume Variance 50. Outdoors Company manufactures sleeping bags that sell for $30 each. The variable standard costs of production are $19.50. Budgeted fixed manufacturing overhead is $100,000, and budgeted production is 10,000 sleeping bags. The company actually manufactured 12,500 bags, of which 11,000 were sold. There were no variances during the year except for the fixed-overhead volume variance. Variable selling and administrative costs are $0.50 per sleeping bag sold; fixed selling and administrative costs are $5,000. Required: A. Calculate the standard product cost per sleeping bag under absorption costing and variable costing. B. Compute the fixed-overhead volume variance. C. Prepare income statements for the year by using absorption costing and variable costing. LO: 2, 3, 9 Type: A Answer: A. The absorption cost is $29.50 [$19.50 + ($100,000 ¸ 10,000 units)], and the variable cost is $19.50. B. Volume variance = budgeted fixed overhead - fixed overhead applied = $100,000 - (12,500 units x $10) = $(25,000) or $25,000F C. Outdoors Company Absorption-Costing Income Statement For the Year Ended December 31, 20xx Sales revenue (11,000 units x $30) $330,000 Less: Cost of goods sold (11,000 units x $29.50) 324,500 Gross margin (at standard) $ 5,500 Add: Fixed-overhead volume variance 25,000 Gross margin (at actual) $ 30,500 Less: Operating expenses [(11,000 units x $0.50) + $5,000] 10,500 Net income $ 20,000 Outdoors Company Variable-Costing Income Statement For the Year Ended December 31, 20xx Sales revenue (11,000 units x $30) $330,000 Less: Var. cost of goods sold (11,000 units x $19.50) $214,500 Var. operating expenses (11,000 units x $0.50) 5,500 220,000 Contribution margin $110,000 Less: Fixed costs ($100,000 + $5,000) 105,000 Net income $ 5,000
Absorption Costing, Variable Costing, and Terminology 51. Absorption and variable costing are two different methods of measuring income and costing inventory.

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture