Standard absorption, variable, and throughput costing. (CMA) The Byrd Company is a manufacturer of appliances for both residential and commercial use. The company’s accounting and financial reporting system is primarily designed to meet external reporting requirements in accordance with generally accepted accounting principles. For inventory costing purposes, Byrd uses the absorption costing method in conjunction with a standard costing system. Costs are allocated to products on a units-produced basis. The denominator of fixed manufacturing costs is normal capacity utilization in production units. Relevant information on Byrd’s steam cooker appliance for the last two years is as follows:

Unit Data 2006 2007 Beginning inventory 900 1,400 Production 2,000 400 Sales 1,500 1,700 Normal capacity utilization 2,000 2,000 standard costs for this product are the same in 2005, 2006, and 2007.
Financial Data 2006 2007 Selling price per unit $ 120 $ 120 Standard variable direct manufacturing costs per unit* 48.70 48.70 Standard variable indirect manufacturing costs per unit 15 15 Variable marketing costs per unit sold 1 1 Total budgeted (and actual) fixed manufacturing costs 10,000 10,000 Total fixed marketing costs 3,000 3,000 Net unfavourable variance* pertaining to variable manufacturing costs 1,000 1,000 *Standard variable direct materials costs are $28 per unit.
+A11 variances are written offto cost of goods sold in the period incurred.
Currently, Byrd evaluates the performance of its product-line managers and calculates the bonus based on operating income computed on an absorption costing basis. It has been sug¬
gested that the use of variable costing for internal reporting purposes would more accurately reflect the performance of each product-line manager.
Required 1. Calculate the Byrd Company’s operating income on its steam cooker appliance line for 2006 and 2007 using

(a) absorption costing,

(b) variable costing, and

(c) throughput costing.
2. Discuss the features of variable costing that allow it to reflect the performance of Byrd’s product-line managers more accurately. Be sure to include in your discussion how absorp¬
tion costing may influence a product-line manager’s behaviour differently from the way variable costing would.
3. What are the pros and cons of adopting throughput costing?