9-24 Throughput costing (continuation of 9-23).

The variable manufacturing costs per unit

of Crystal Clear Corporation are as follows:

January February March

Direct material cost per unit $550 $550 $550
Direct manufacturing labor cost per unit 175 175 175
Manufacturing overhead cost per unit 225 225 225
$950 $950 $950

Required:
1. Prepare income statements for Crystal Clear in January, February, and March 2017 under
throughput costing.
2. Contrast the results in requirement 1 with those in requirement 1 of Exercise 9-23.
3. Give one motivation for Crystal Clear to adopt throughput costing.

SOLUTION

(20–30 min.) Throughput costing (continuation of Exercise 9-23).

1.
January February March

Revenuesa $4,550,000 $4,812,500 $5,092,500

Direct material cost of goods

sold
Beginning inventoryb $ 0 $55,000 $ 55,000
Direct materials in goods
manufacturedc 770,000 756,250 786,500
Cost of goods available for
sale 770,000 811,250 841,500
Deduct ending inventoryd (55,000) (55,000) (41,250)
Total direct material
cost of goods sold 715,000 400,000 800,250
Throughput margin 3,835,000 4,056,250 4,292,250
Other costs
Manufacturinge 1,050,000 1,040,000 1,062,000
Operatingf 1,062,500 1,116,875 1,174,875
Total other costs 2,112,500 2,156,875 2,236,875
Operating income $1,722,500 $1,899,375 $2,055,375

a $3,500 × 1,300; $3,500 × 1,375; $3,500 × 1,455

b
$0 × 0; $550 × 100; $550 × 100
c
$550 × 1,400; $550 × 1,375; $550 × 1,430
d
$550 × 100; $550 × 100; $550 ×75
e
($400 × 1,400) + $490,000; ($400 × 1,375) + $490,000; ($400 × 1,430) + $490,000
f ($725 × 1,300) + $120,000; ($725 × 1,375) + $120,000; ($725 × 1,455) + $120,000

2. Operating income under:

 January February March
$1,762,500 $1,899,375 $2,045,375
Variable costing 1,797,500 1,899,375 2,036,625
Absorption costing 1,722,500 1,899,375 2,055,375
Throughput costing

Throughput costing puts greater emphasis on sales as the source of operating income than does
absorption or variable costing. Accordingly, income under throughput costing is highest in
periods where the number of units sold is relatively large (as in March) and lower in periods of
weaker sales (as in January).

3. Throughput costing puts a penalty on producing without a corresponding sale in the same
period. Costs other than direct materials that are variable with respect to production are expensed
when incurred, whereas under variable costing they would be capitalized as an inventoriable
cost.