Question

Byrd Company is a manufacturer of appliances for both residential and commercial use. The company’s accounting and financial reporting system is primarily designed to meet external reporting requirements in accordance with generally accepted accounting principles. For inventory costing purposes, Byrd uses the absorption costing method in conjunction with a standard costing system. Costs are allocated to products on a units-produced basis. The denominator of fixed manufacturing costs is normal capacity utilization in production units. Relevant information on Byrd’s steam cooker appliance for the last two years is as follows:
The standard costs for this product are the same in 2012, 2013, and 2014.
All variances are written off to cost of goods sold in the period incurred.
Currently, Byrd evaluates the performance of its product-line managers and calculates their bonuses based on operating income computed on an absorption-costing basis. It has been suggested that the use of variable costing for internal reporting purposes would more accurately reflect the performance of each product-line manager.
REQUIRED
1. Calculate Byrd Company’s operating income on its steam cooker appliance line for 2012 and 2013 using
(a) Absorption costing,
(b) Variable costing, and
(c) Throughput costing.
2. Discuss the features of variable costing that allow it to reflect the performance of Byrd’s product-line managers more accurately. Be sure to include in your discussion how absorption costing may influence a product-line manager’s behavior differently from the way variable costing would.
3. What are the pros and cons of adopting throughput costing?


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  • CreatedJuly 31, 2015
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