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Throughput Costing Example

Throughput costing is an alternative to variable and absorption costing for calculating cost of goods sold and income. It focuses on throughput contribution by only including direct materials costs in inventoriable costs per unit, rather than direct labor and overhead costs. This results in higher throughput contribution and lower ending inventory values than variable or absorption costing. An example is provided to illustrate the differences in income and ending inventory calculations under the three costing methods.

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Nikunj Nagar
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6K views

Throughput Costing Example

Throughput costing is an alternative to variable and absorption costing for calculating cost of goods sold and income. It focuses on throughput contribution by only including direct materials costs in inventoriable costs per unit, rather than direct labor and overhead costs. This results in higher throughput contribution and lower ending inventory values than variable or absorption costing. An example is provided to illustrate the differences in income and ending inventory calculations under the three costing methods.

Uploaded by

Nikunj Nagar
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Throughput Costing

A Third Way to Calculate Cost of Goods Sold and Income


Variable Costing Throughput Costing

Also called Direct Also called SuperCosting Variable Costing Match all mfg Match only for direct costs except FMOH materials
Focuses on Contri- Focuses on Throughbution Margin put Contribution This isnt GAAP This also isnt GAAP

Example of Throughput Costing


10,000 units are made, 9,000 are sold.

Each unit sells for $350.


Variable mfg costs are $150 per unit, consisting of $90 in materials, $40 in direct labor, and $20 in variable mfg overhead. Fixed mfg costs are $700,000.

Variable non-mfg costs: $50 per unit sold.


Fixed non-mfg costs are $400,000.

Throughput Costing
Total inventoriable cost per unit:

Only the $90 in direct materials

Throughput Contribution Income Statement


Sales (9,000 x $350) $3,150,000

D.M. COGS (9K x $90)


Throughput Contribution Mfg costs other than d.m.:

810,000
2,340,000

($40 + $20) x 10,000 units 600,000 Fixed Mfg Overhead Non-mfg costs* Income $ 700,000 850,000 190,000

*The same as under Absorption and Variable Costing

Reconciliation of Throughput Costing Income to Variable Costing Income


Throughput Costing Income Variable Costing Income Difference $190,000 250,000 60,000

Direct labor and variable mfg overhead expensed under throughput costing, in ending inventory under variable costing: 1,000 units x $60 per unit = 60,000

Summary of Income under Absorption, Variable and Throughput Costing


Absorption Costing Variable Costing Throughput Costing

Income:

$320,000

$250,000

$190,000

Calculate Ending Inventory under Absorption, Variable and Throughput Costing


10,000 units are made, 9,000 are sold.

Each unit sells for $350.


Variable mfg costs are $150 per unit, consisting of $90 in materials, $40 in direct labor, and $20 in variable mfg overhead. Fixed mfg costs are $700,000.

Variable non-mfg costs: $50 per unit sold.


Fixed non-mfg costs are $400,000.

Calculate Ending Inventory under Absorption, Variable and Throughput Costing


Absorption Costing: 1,000 units x $220 per unit = $220,000
Variable Costing: 1,000 units x $150 per unit = $150,000 Throughput Costing: 1,000 units x $90 per unit = $90,000

Summary of Income under Absorption, Variable and Throughput Costing


Absorption Costing Variable Costing Throughput Costing

Income:
Ending inventory

$320,000
$220,000

$250,000
$150,000

$190,000
$90,000

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