Champion Motors assembles and sells motor vehicles and uses standard costing. Actual data and variable costing and
Question:
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
2017are as follows:
DATA:
April
May
Unit data:
Beginning inventory
0
100
Production
700
600
Sales
600
660
Variable costs:
Manufacturing cost per unit produced
$9,500
$9,500
Operating (marketing) cost per unit sold
3,800
3,800
Fixed costs:
Manufacturing costs
$2,100,000
$2,100,000
Operating (marketing) costs
550,000
550,000
The selling price per vehicle is $27,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 700 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs.
VARIABLE COSTS:
April 2017
May 2017
Revenues
$16,200,000
$17,820,000
Variable costs:
Beginning inventory
$0
$950,000
Variable manufacturing costs
6,650,000
5,700,000
Cost of goods available for sale
6,650,000
6,650,000
Less:
Ending inventory
(950,000)
(380,000)
Variable cost of goods sold
5,700,000
6,270,000
Variable operating costs
2,280,000
2,508,000
Total variable costs
7,980,000
8,778,000
Contribution margin
8,220,000
9,042,000
Fixed costs:
Fixed manufacturing costs
2,100,000
2,100,000
Fixed operating costs
550,000
550,000
Total fixed costs
2,650,000
2,650,000
Operating income
$5,570,000
$6,392,000
ABSORPTION COSTING INCOME STATEMENTS
April 2017
May 2017
Revenues
$16,200,000
$17,820,000
Cost of goods sold:
Beginning inventory
$0
$1,250,000
Variable manufacturing costs
6,650,000
5,700,000
Allocated fixed manufacturing costs
2,100,000
1,800,000
Cost of goods available for sale
8,750,000
8,750,000
Less:
Ending inventory
(1,250,000)
(500,000)
Adjustment for production-volume variance
0
300,000
U
Cost of goods sold
7,500,000
8,550,000
Gross margin
8,700,000
9,270,000
Operating costs:
Variable operating costs
2,280,000
2,508,000
Fixed operating costs
550,000
550,000
Total operating costs
2,830,000
3,058,000
Operating income
$5,870,000
$6,212,000
DATA
April
May
Direct material cost per unit
$6,600
$6,600
Direct manufacturing labor cost per unit
1,800
1,800
Manufacturing overhead cost per unit
1,100
1,100
Do income statements for Champion Motors in April and May 2017 under throughput costing.
Contrast the results in requirement 1 with the absorption and variable costing income statements presented.
Give one motivation for champion motors to adopt throughput costing
Expert Answer:
