In: Accounting
January |
February |
March |
|
Unit data: |
|||
Beginning Inventory |
0 |
100 |
100 |
Production |
1,550 |
1,450 |
1,500 |
Sales |
1,450 |
1,450 |
1,490 |
Variable Costs: |
|||
Manufacturing Cost per unit produced |
$1,000 |
$1,000 |
$1,000 |
Marketing cost per unit sold |
$700 |
$700 |
$700 |
Fixed Costs: |
|||
Manufacturing Costs |
$515,000 |
$515,000 |
$515,000 |
Marketing Costs |
$140,000 |
$140,000 |
$140,000 |
January |
February |
March |
|
Unit data: |
|||
Beginning Inventory |
0 |
100 |
100 |
Production |
1,550 |
1,450 |
1,500 |
Sales |
1,450 |
1,450 |
1,490 |
Variable Costs: |
|||
Manufacturing Cost per unit produced |
$1,000 |
$1,000 |
$1,000 |
Marketing cost per unit sold |
$700 |
$700 |
$700 |
Fixed Costs: |
|||
Manufacturing Costs |
$515,000 |
$515,000 |
$515,000 |
Marketing Costs |
$140,000 |
$140,000 |
$140,000 |
The selling price per unit is $3,500. The budgeted level of production used to calculate the budgeted fixed manufacturing costs was 1,550 units in January, 1,450 units in February, and 1,500 units in March. They were so accurate at predicting their production volumes there are no production volume variances to worry about. Also, there are no price, efficiency or spending variances.
Part II: The variable manufacturing costs per unit of Quarryman Corporation are as follows:
January |
February |
March |
|
Direct materials cost per unit |
$535 |
$535 |
$535 |
Direct manufacturing labor cost per unit |
$190 |
$190 |
$190 |
MOH cost per unit |
$275 |
$275 |
$275 |
$1,000 |
$1,000 |
$1,000 |
1. Prepare income statement for Quarryman Corporation in January, February and March 2019 under throughput costing.
2. Contrast the results of throughput costing with those of variable costing. If you calculate different profit figures, reconcile the difference. In other words, tell me where the difference is, and quantify it. Again, do not be concerned with minor rounding issues, as they are not material.
3. Provide at least one reason why companies might prefer throughput costing over absorption costing or variable costing.
1. Income Statement Under Throughput Costing:
Throughput Costing also called as Super Variable Costing. Under this method only Direct Material Cost is considered as Variable Cost and All other variable Cost like Labor and overheads are considered as Period cost. Under This method Inventories value is calculated using only Direct Material Cost. So Cost of goods sold is calculated using only Direct material cost.
So Sales - Direct Material cost of Goods sold will give us throughput contribution.
Then all other expenses are reduced from Throughput contribution to get Net income/profit.
Income Statement of Quarrymen Corporation under Throughput Costing | |||
Particulars | Jan | Feb | March |
Sales |
5075000 (1450*3500) |
5075000 (1450*3500) |
5215000 (1490*3500) |
Direct Material Cost of Goods Sold: | |||
Beginning Inventory |
0 |
53500 (100*535) |
53500 (100*535) |
(+)DM cost of Units Produced |
829250 (1550*535) |
775750 (1450*535) |
802500 (1500*535) |
Cost of Goods Available For Sale | 829250 | 829250 | 856000 |
(-)Ending Inventory |
53500 (100*535) |
53500 (100*535) |
58850 (110*535) |
Direct Material Cost of Goods Sold | 775750 | 775750 | 797150 |
Throughput Contributtion | 4299250 | 4299250 | 4417850 |
(-) Other Cost | |||
Direct Manufacturing Labour Cost ($190 per Unit) | 275500 (1450*190) | 275500 (1450*190) | 283100 (1490*190) |
MOH cost ($275 per Unit) | 398750 (1450*275) | 398750 (1450*275) | 409750 (1490*275) |
Marketing Cost ($700 per unit) | 1015000 (1450*700) | 1015000 (1450*700) | 1043000 (1490*700) |
Fixed Manufacturing cost | 5,15,000 | 5,15,000 | 5,15,000 |
Fixed Marketing cost | 1,40,000 | 1,40,000 | 1,40,000 |
Net Income | 19,55,000 | 19,55,000 | 20,27,000 |
2. Contrast Results of Throughput Costing and Variable Costing:
we are going to prepare income statement under Variable Costing to compare results with income statement under Throughput costing. Under This method Inventories value is calculated using all variable Cost. So Cost of goods sold is calculated using all variable cost not only Direct material cost.
So Sales - Variable cost of Goods sold will give us contribution.
Then all other expenses are reduced from contribution to get Net income/profit.
Income Statement of Quarrymen Corporation under Variable Costing | |||
Particulars | Jan | Feb | March |
Sales | 5075000 (1450*3500) | 5075000 (1450*3500) | 5215000 (1490*35000) |
Variable Cost of Goods Sold: | |||
Beginning Inventory | 0 | 170000 (100*1700) | 170000 (100*1700) |
(+)Variable cost of Units Produced | 1550000 (1550*1000) | 1450000 (1450*1000) | 1500000 (1500*1000) |
(+) Variable Marketing Cost ($700 per unit) | 10,85,000 (1550*700) | 10,15,000 (1450*700) | 10,50,000 (1500*700) |
Cost of Goods Available For Sale | 26,35,000 | 26,35,000 | 27,20,000 |
(-)Ending Inventory | 170000 (100*1700) | 170000 (100*1700) | 187000 (110*1700) |
Variable Cost of Goods Sold | 24,65,000 | 24,65,000 | 25,33,000 |
Contribution | 26,10,000 | 26,10,000 | 26,82,000 |
(-) Other Cost | |||
Fixed Manufacturing cost | 5,15,000 | 5,15,000 | 5,15,000 |
Fixed Marketing cost | 1,40,000 | 1,40,000 | 1,40,000 |
Net Income | 19,55,000 | 19,55,000 | 20,27,000 |
Answer:
On comparing the Net Income from Throughput and Variable costing, it is found that there is no difference in income.\
3. Reason why Companies should prefer throughput costing over variable costing and absorption costing:
Under Throughput costing inventories are valued at low cost compared to Variable costing and absorption costing so this prevents management to build up excess inventories as they cannot spread fixed cost over larger no. of units.