Question

E9-22 (similar to) Question Help 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 2017 are as follows: The variable manufacturing costs per unit of Champion Motors are as follows E (Click the icon to view the variable manufacturing costs per unit) ad the requirements Data Table - X Requirements April 1. Prepare income statements for Champion Motors in April and May 2017 under throughput costing 2. Contrast the results in requirement 1 with the absorption and variable costing income statements presented 3. Give one motivation for Champion Motors to adopt throughput costing Data Table Unit data Beginning inventory 100 Production 550 Sales 500 610 Variable costs Manufacturing cost per unit produced S 8,500 S 8.500 Operating (marketing) cost per unit sold 4,000 4,000 Fored costs Manufacturing costs $ 2,400,000 $ 2.400,000 Operating (marketing) costs 675,000 675,000 The selling price per vehicle is $27000 The budgeted level of production used to Calculate the budgeted faced manufacturing cost per unit is 600 units. There are no pnce, efficiency, or spending vanances Any production volume vanance is written oti to cost of goods sold in the month in which it occurs Direct material cost per unit Direct manufacturing labor cost per unit Manufacturing overhead cost per unit April 6,500 $ 1,800 200 May 6,500 1.800 200 Print Done Print Done

Answer 1

Answer with detailed working is given below

Q.No.1 Champion Motors Income statement Throughput Costing April 2017 600 500 100 $27,000 May 2017 550 610 Production units Sales Closing stock Selling price per unit $27,000 $13,500,000 $16,470,000 $650,000 Sales Less : Cost of Goods Sold Beginning FG Inventory Variable Cost of Goods manufactured Direct Material manufacturing cost Total Cost of Goods available for Sale Less : Ending FG Inventory Variable Cost of Goods Sold Contribution Margin $3,900,000 $3,900,000 $650,000 $3,575,000 $4,225,000 $260,000 $3,250,000 $10,250,000 $3,965,000 $12,505,000 Labour Cost Variable Manufacturing cost Marketing cost Fixed Manufacturing overheads Fixed Operating (marketing) Total Expenses $1,080,000 $120,000 $2,000,000 $2,400,000 $675,000 $6,275,000 $990,000 $110,000 $2,440,000 $2,400,000 $675,000 $6,615,000 Operating Income $3,975,000 $5,890,000 Q.No.2 Closing stock as per throughput costing is valued only at Material cost hence closing inventory will be valued lower Below given is the reconciliation of profit as per 3 methods of Income Statement May 2017 $5,530,000 Reconciliation of Profit Variable Costing and Absorption Costing and Throughput Costing April 2017 Profit as per Absorption Costing $4,575,000 Difference in closing stock Closing stock as per Absorption costing $1,250,000 Closing stock as per Variable costing $850,000 Difference $400,000 $500,000 $340,000 $160,000 Difference in Opening stock Opening stock as per Absorption Costing Opening stock as per Variable Costing Difference $1,250,000 $850,000 $400,000 Profit as per Variable costing $4,175,000 $5,770,000 Difference in closing stock Closing stock as per Variable costing Closing stock as per throughput costing Difference $850,000 $650,000 $200,000 $340,000 $260,000 $80,000 Difference in Opening stock Opening stock as per Variable costing Opening stock as per throughput costing Difference $850,000 $650,000 $200,000 $0 Profit as per throughput Costing $3,975,000 $5,890,000 Q.No.3 Motivation for Throughput Costing -Less incentive to produce inventory and manage production better