# B budgeted production cab budgeted fixed

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(b) Budgeted production (c)=(a)÷(b) Budgeted fixed manufacturing cost per unit (d) Budgeted variable manufacturing cost per unit (e)=(c)+(d) Budgeted total manufacturing cost per unit \$2,000,000 500 \$4,000 \$10,000 \$14,000 \$2,000,000 500 \$4,000 \$10,000 \$14,000 (a) Variable costing April 2006 May 2006 Revenues a \$8,400,000 \$12,480,000 Variable costs Beginning inventory \$ 0 \$1,500,000 Variable manufacturing costs b 5,000,000 4,000,000 Cost of goods available for sale 5,000,000 5,500,000 Deduct ending inventory c 1,500,000 300,000 Variable cost of goods sold 3,500,000 5,200,000 Variable operating costs d 1,050,000 1,560,000 Total variable costs 4,550,000 6,760,000 Contribution margin 3,850,000 5,720,000 Fixed costs Fixed manufacturing costs 2,000,000 2,000,000 Fixed operating costs 600,000 600,000 Total fixed costs 2,600,000 2,600,000 Operating income \$1,250,000 \$3,120,000 a \$24,000 × 350; \$24,000 × 520 c \$10,000 × 150; \$10,000 × 30 b \$10,000 × 500; \$10,000 × 400 d \$3,000 × 350; \$3,000 × 520
(b) Absorption costing April 2006 May 2006 Revenues a \$8,400,000 \$12,480,000 Cost of goods sold Beginning inventory \$ 0 \$2,100,000 Variable manufacturing costs b 5,000,000 4,000,000 Allocated fixed manufacturing costs c 2,000,000 1,600,000 Cost of goods available for sale 7,000,000 7,700,000 Deduct ending inventory d 2,100,000 420,000 Adjustment for prod.-vol. variance e 0 400,000 U Cost of goods sold 4,900,000 7,680,000 Gross margin 3,500,000 4,800,000 Operating costs Variable operating costs f 1,050,000 1,560,000 Fixed operating costs 600,000 600,000 Total operating costs 1,650,000 2,160,000 Operating income \$1,850,000 \$ 2,640,000 a \$24,000 × 350; \$24,000 × 520 d \$14,000 × 150; \$14,000 × 30 b \$10,000 × 500; \$10,000 × 400 e \$2,000,000 \$2,000,000; \$2,000,000 \$1,600,000 c \$4,000 × 500; \$4,000 × 400 f \$3,000 × 350; \$3,000 × 520 2. ( ) Absorption-costing,operating income ( ) Variable-costing,operating income ( ) Fixed manufacturing,costs in,ending inventory ( ) Fixed manufacturing,costs in,beginning inventory April: \$1,850,000 \$1,250,000 = (\$4,000 × 150) \$600,000 = \$600,000 May: \$2,640,000 \$3,120,000 = (\$4,000 × 30) (\$4,000 × 150) \$480,000 = \$120,000 \$600,000 \$480,000 = \$480,000 The difference between absorption and variable costing is due solely to moving fixed manufacturing costs into inventories as inventories increase (as in April) and out of inventories as they decrease (as in May). = (\$0)
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9-5 9-17 (20 min.) Throughput costing (continuation of Exercise 9-16). 1. April 2006 May 2006 Revenues a \$8,400,000 \$12,480,000 Direct material cost of goods sold Beginning inventory Direct materials in goods manufactured b \$ 0 3,350,000 \$1,005,000 2,680,000 Cost of goods available for sale Deduct ending inventory c 3,350,000 1,005,000 3,685,000 201,000 Total direct material cost of goods sold Throughput contribution Other costs 2,345,000 6,055,000 3,484,000 8,996,000 Manufacturing costs 3,650,000 d 3,320,000 e Other operating costs 1,650,000 f 2,160,000 g Total other costs Operating income 5,300,000 \$ 755,000 5,480,000 \$ 3,516,000 a \$24,000 × 350; \$24,000 × 520 e (\$3,300 × 400) + \$2,000,000 b \$6,700 × 500; \$6,700 × 400 f (\$3,000 × 350) + \$600,000 c \$6,700 × 150; \$6,700 × 30 g (\$3,000 × 520) + \$600,000 d (\$3,300 × 500) + \$2,000,000 2. Operating income under: April May Absorption costing Variable costing Throughput costing \$1,850,000 1,250,000 755,000 \$2,640,000 3,120,000 3,516,000 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. 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.
9-6 9-18 (40 min.)