Question

Champion Motors assembles and sells motor vehicles and uses standard costing. Actual data and variable costing and absorption costing income statements relating to April and May 2017are as​ follows:

	April	May
Unit data:
Beginning inventory	0	150
Production	700	675
Sales	550	800
Variable costs:
Manufacturing cost per unit produced	$8,000	$8,000
Operating (marketing) cost per unit sold	3,200	3,200
Fixed costs:
Manufacturing costs	$2,100,000	$2,100,000
Operating (marketing) costs	700,000	700,000

The selling price per vehicle is $21,000. 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.

variable costing income statements

			April 2017		May 2017
Revenues				$11,550,000		$16,800,000
Variable costs:
	Beginning inventory		$0		$1,200,000
	Variable manufacturing costs		5,600,000		5,400,000
	Cost of goods available for sale		5,600,000		6,600,000
	Less:	Ending inventory	(1,200,000)		(200,000)
	Variable cost of goods sold		4,400,000		6,400,000
	Variable operating costs		1,760,000		2,560,000
	Total variable costs			6,160,000		8,960,000
Contribution margin				5,390,000		7,840,000

Fixed costs:
	Fixed manufacturing costs		2,100,000		2,100,000
	Fixed operating costs		700,000		700,000
	Total fixed costs			2,800,000		2,800,000
Operating income				$2,590,000		$5,040,000

absorption costing income statements

			April 2017		May 2017
Revenues				$11,550,000			$16,800,000
Cost of goods sold:
	Beginning inventory		$0		$1,650,000
	Variable manufacturing costs		5,600,000		5,400,000
	Allocated fixed manufacturing costs		2,100,000		2,025,000
	Cost of goods available for sale		7,700,000		9,075,000
	Less:	Ending inventory	(1,650,000)		(275,000)
	Adjustment for production-volume variance		0		75,000	U
	Cost of goods sold			6,050,000			8,875,000
Gross margin				5,500,000			7,925,000

Operating costs:
	Variable operating costs		1,760,000		2,560,000
	Fixed operating costs		700,000		700,000
	Total operating costs			2,460,000		3,260,000
Operating income				$3,040,000		$4,665,000

The variable manufacturing costs per unit of Champion Motors are as​ follows:

April May

Direct material cost per unit. $6,600 $6,600

Direct manufacturing labor cost per unit 1,100 1,100

Manufacturing overhead cost per unit. 300 300

Requirement 1. Prepare income statements for Champion Motors in April and May

2017 under throughput costing.

Begin by completing the top portion of the​ statement, then the bottom portion. ​

Answer 1

Solution:-

Income Statement for Champion Motors In April and May 2017 under Throughput costing

Particulars	Apr-17	May-17
Revenues		11,550,000		16,800,000
Beginning inventory	0		12,00,000
Direct materials in goods manufactured (6,600*700) (6,600*675)	46,20,000		44,55,000
Cost of goods available for sale	46,20,000		56,55,000
Deduct ending inventory          (6,600*(700-550)) ; (6,600*(675-800))	(42,57,000)		(8,25,000)
Total direct material cost of good sold		3,63,000		48,30,000
Throughput margin		1,11,87,000		11,970,000
Manufacturing costs ((1300*700)+21,00,000); (1300*675)+21,00,000)		30,10,000		29,77,500
Other operating costs (3,200*550)+7,00,000) ; (3,200*800)+7,00,000)		24,60,000		32,60,000
Operating Income		57,17,000		57,32,500

Particulars	April	May
Variable Costing	25,90,000	50,40,000
Absorption costing	30,40,000	46,65,000
Throughput Costing	57,17,000	57,32,500

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 variable costing or absorption costing.