Question

In: Accounting

January February March Unit data: Beginning Inventory 0 100 100 Production 1,550 1,450 1,500 Sales 1,450...

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.

Solutions

Expert Solution

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.


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