ABSORPTION, VARIABLE, AND THROUGHPUT COSTING. Adin Inc. produces trail mix packaged for sale in convenience stores across Canada. At the beginning of April 2018, Adin has no inventory of trail mix. Demand for the next three months is expected to remain constant at 50,000 bags per month. Adin plans to produce 50,000 bags in April. However, many of the employees take vacation in June, so Adin plans to produce 70,000 bags in May and only 30,000 bags in June.

LO 3, 4

1. Operating income for April, $75,000

Costs for the three months are expected to remain unchanged. The costs and revenues for April, May, and June are expected to be

Sales revenue	$6.00 per bag
Direct material cost	$0.80 per bag
Direct manufacturing labour cost	$0.45 per bag
Variable manufacturing overhead cost	$0.30 per bag
Variable selling cost	$0.15 per bag
Fixed manufacturing overhead cost	$105,000 per month
Fixed administrative costs	$ 35,000 per month

Suppose the actual costs, market demand, and levels of production for April, May, and June are as expected.

Required

1. Compute operating income for April, May, and June under variable costing.

2. Compute operating income for April, May, and June under absorption costing. Assume that the denominator level for each month is that months expected level of output.

3. Compute operating income for April, May, and June under throughput costing.

4. Discuss the benefits and problems associated with using throughput costing.