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 2014

are as follows:

	April	May
Unit data
Beginning inventory	0	50
Production	500	475
Sales	450	475
Variable costs
Manufacturing cost per unit produced	$12,000	$12,000
Operating (marketing) cost per unit sold	3,400	3,400
Fixed costs
Manufacturing costs	$2,200,000	$2,200,000
Operating (marketing) costs	800,000	800,000

The selling price per vehicle is $25,000.

The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is

500 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 COSTING INCOME STATMENT

		Apr-14		May-14
Revenues			$11,250,000		$11,875,000
Variable costs:
	Beginning inventory	$0		$600,000
	Variable manufacturing costs	6,000,000		5,700,000
	Cost of goods available for sale	6,000,000		6,300,000
	Less: Ending Inventory	-600,000		-600,000
	Variable cost of goods sold	5,400,000		5,700,000
	Variable operating costs	1,530,000		1,615,000
	Total variable costs		6,930,000		7,315,000
Contribution margin			4,320,000		4,560,000

ABSORPTION COSTING INCOME STATEMENT

			Apr-14		May-14
Revenues			$11,250,000			$11,875,000
Cost of goods sold:
Beginning inventory		$0		$820,000
Variable manufacturing costs		6,000,000		5,700,000
Allocated fixed manufacturing costs		2,200,000		2,090,000
Cost of goods available for sale		8,200,000		8,610,000
Less:	Ending inventory	-820,000		-820,000
Adjustment for production-volume variance		0		110,000	U
Cost of goods sold			7,380,000			7,900,000
Gross margin				3,870,000		3,975,000
Operating costs:
	Variable operating costs		1,530,000		1,615,000
	Fixed operating costs		800,000		800,000
	Total operating costs			2,330,000		2,415,000
Operating income				$1,540,000		$1,560,000

VARIBALE MANUFACTURING COST PER UNIT

	April	May
Direct material cost per unit	$6,700	$6,700
Direct manufacturing labor cost per unit	2,000	2,000
Manufacturing overhead cost per unit	3,300	3,300

Requirements

1. Prepare income statements for Champion

Motors in April and May 2014 under throughput costing.

2. Contrast the results in requirement 1 with the absorption and variable costing income statements presented.

3. Give one motivation for Champion Motors to adopt throughput costing.