ABSORPTION COSTING VERSUS THROUGHPUT COSTING The book The Goal illustrates the concept of throughput costing. For the problem below prepare all journal entries and determine the impact on the income statement of the differences between absorption costing (normal accounting) and throughput costing. HINT: pay very careful attention to definitions of throughput, inventory and operating expense from the book BUDGETED MANUFACTURING COSTS DIRECT MATERIAL $20 PER UNIT DIRECT LABOR $2 PER UNIT VARIABLE OVERHEAD $10 PER UNIT FIXED OVERHEAD $150,000 YEAR 1 NO BEGINNING INVENTORY ACTUAL COSTS OF PRODUCTION EQUALS ABOVE MANUFACTURING COSTS PURCHASE DIRECT MATERAILS OF $200,000 INCUR SELLING AND ADMIN COSTS OF $80,000 #UNITS PRODUCED 10,000 # UNITS SOLD 9,000 SALES PRICE OF UNITS SOLD $100 YEAR 2 THERE IS BEGINNING INVENTORY ACTUAL COSTS OF PRODUCTION EQUALS ABOVE MANUFACTURING COSTS PURCHASE DIRECT MATERAILS OF $160,000 INCUR SELLING AND ADMIN COSTS OF $80,000 #UNITS PRODUCED 8,000 UNITS # UNITS SOLD 9,000 UNITS SALES PRICE OF UNITS SOLD $100 REQUIRED: 1. PREPARE ALL JOURNAL ENTRIES FOR BOTH YEARS TO REFLECT THE ABOVE TRANSACTIONS UNDER NORMAL ABSORPTION COSTING AND UNDER THROUGHPUT COSTING

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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ABSORPTION COSTING VERSUS THROUGHPUT COSTING
The book The Goal illustrates the concept of throughput costing. For the problem below
prepare all journal entries and determine the impact on the income statement of the
differences between absorption costing (normal accounting) and throughput costing.
HINT: pay very careful attention to definitions of throughput, inventory and operating
expense from the book

BUDGETED MANUFACTURING COSTS
DIRECT MATERIAL		$20	PER UNIT
DIRECT LABOR		$2	PER UNIT
VARIABLE OVERHEAD	$10	PER UNIT
FIXED OVERHEAD		$150,000

YEAR 1
NO BEGINNING INVENTORY
ACTUAL COSTS OF PRODUCTION EQUALS ABOVE MANUFACTURING COSTS
PURCHASE DIRECT MATERAILS OF	$200,000
INCUR SELLING AND ADMIN COSTS OF	$80,000
#UNITS PRODUCED			10,000
# UNITS SOLD			9,000
SALES PRICE OF UNITS SOLD		$100

YEAR 2
THERE IS BEGINNING INVENTORY
ACTUAL COSTS OF PRODUCTION EQUALS ABOVE MANUFACTURING COSTS
PURCHASE DIRECT MATERAILS OF	$160,000
INCUR SELLING AND ADMIN COSTS OF	$80,000
#UNITS PRODUCED			8,000	UNITS
# UNITS SOLD			9,000	UNITS
SALES PRICE OF UNITS SOLD		$100

REQUIRED:
1. PREPARE ALL JOURNAL ENTRIES FOR BOTH YEARS TO REFLECT THE ABOVE TRANSACTIONS
UNDER NORMAL ABSORPTION COSTING AND UNDER THROUGHPUT COSTING

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