# 3 throughput costing puts a penalty on production

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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- 3
9-18 (40 min.) Variable and absorption costing, explaining operating-income differences. 1. Key inputs for income statement computations are: January February March Beginning inventory Production Goods available for sale Units sold Ending inventory 0 1,400 1,400 1,300 100 100 1,375 1,475 1,375 100 100 1,430 1,530 1,455 75 The budgeted fixed manufacturing cost per unit and budgeted total manufacturing cost per unit under absorption costing are: January February March (a) Budgeted fixed manufacturing costs (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 \$490,000 1,400 \$350 \$950 \$1,300 \$490,000 1,400 \$350 \$950 \$1,300 \$490,000 1,400 \$350 \$950 \$1,300 9- 4
(a) Variable Costing January 2014 February 2014 March 2014 Revenues a \$4,550,000 \$4,812,500 \$5,092,500 Variable costs Beginning inventory b \$ 0 \$ 95,000 \$ 95,000 Variable manufactur ing costs c 1,330,000 1,306,250 1,358,500 Cost of goods available for sale Deduct ending inventory d 1,330,000 (95,000) 1,401,250 (95,000) 1,453,500 (71,250) Variable cost of goods sold Variable operating costs e Total variable costs 1,235,000 942,500 2,177,500 1,306,250 996,875 2,303,125 1,382,250 1,054,875 2,437,125 9- 5
Contribution margin Fixed costs Fixed manufactur ing costs Fixed operating costs Total fixed costs Operating income 490,000 120,000 2,372,500 610,000 \$1,762,500 490,000 120,000 2,509,375 610,000 \$1,899,375 490,000 120,000 2,655,375 610,000 \$2,045,375 a \$3,500 × 1,300; \$3,500 × 1,375; \$3,500 × 1,455 b \$? × 0; \$950 × 100; \$950 × 100 c \$950 × 1,400; \$950 × 1,375; \$950 × 1,430 d \$950 × 100; \$950 × 100; \$950 × 75 e \$725 × 1,300; \$725 × 1,375; \$725 × 1,455 9- 6
(b) Absorption Costing January 2014 March 2014 Revenues a Cost of goods sold Beginning inventory b \$ 0 \$ 4 , 5 5 0 , 0 0 0 \$ 130,000 \$4,812,500 \$ 130,000 \$5,092,500 Variable manufacturing costs c 1,330,000 1,306,250 1,358,500 Allocated fixed manufacturing costs d 490,000 481,250 500,500 Cost of goods available for sale 1,820,000 1,917,500 1,989,000 Deduct ending inventory e (130,000) (130,000) (97,500) Adjustment for prod. vol. var. f 0 8,750 U (10,500) F Cost of goods sold 1 , 6 9 0 , 0 0 0 1,796,250 1,881,000 9- 7
Gross margin 2 , 8 6 0 , 0 0 0 3,016,250 3,211,500 Operating costs Variable operating costs g 942,500 996,875 1,054,875 Fixed operating costs 120,000 120,000 120,000 Total operating costs 1 , 0 6 2 , 5 0 0 1,116,875 1,174,875 Operating income \$ 1 , 7 9 7 , 5 0 0 \$1,899,375 \$2,036,625 9- 8
a \$3,500 × 1,300; \$3,500 × 1,375; \$3,500 × 1,455 b \$?× 0; \$1,300 × 100; \$1,300 × 100 c \$950 × 1,400; \$950 × 1,375; \$950 × 1,430 d \$350 × 1,400; \$350 × 1,375; \$350 × 1,430 e \$1,300 × 100; \$1,300 × 100; \$1,300 × 75 f \$490,000 – \$490,000; \$490,000 – \$481,250; \$490,000 – \$500,500 g \$725 × 1,300; \$725 × 1,375; \$725 × 1,455 9- 9
2. – = January: \$1,797,500 – \$1,762,500 = (\$350   × 100) – \$0 \$35,000 = \$35,000 February: \$1,899,375 – \$1,899,375 = (\$350 × 100) – (\$350 × 100) \$0 = \$0 March: \$2,036,625 – \$2,045,375 = (\$350 × 75) – (\$350 × 100) – \$8,750 = – \$8,750 The difference between absorption and variable costing is due solely to moving fixed manufacturing costs into inventories as inventories increase (as in January) and out of inventories as they decrease (as in March). 9- 10
9-21 (10 min.) Absorption and variable costing. The answers are 1(a) and 2(c). Computations: 1. Absorption Costing : Revenues a Cost of goods sold: Variable manufacturing costs b Allocated fixed manufacturing costs c Gross margin \$2,400,000 360,000 \$4,800,000 2,760,000 2,040,000 Operating costs: Variable operating d Fixed operating Operating income 1,200,000 400,000 1,600,000 \$ 440,000 a \$40 × 120,000 b \$20 × 120,000 c Fixed manufacturing rate