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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

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

2017are as follows:

DATA:

AprilMay

Unit data:

Beginning inventory0100

Production 700600

Sales 600660

Variable costs:

Manufacturing cost per unit produced $9,500$9,500

Operating (marketing) cost per unit sold3,8003,800

Fixed costs:

Manufacturing costs$2,100,000$2,100,000

Operating (marketing) costs550,000550,000

The selling price per vehicle is $27,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 700 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 COSTS:

April 2017May 2017

Revenues$16,200,000$17,820,000

Variable costs:

Beginning inventory$0$950,000

Variable manufacturing costs6,650,0005,700,000

Cost of goods available for sale6,650,0006,650,000

Less:Ending inventory(950,000)(380,000)

Variable cost of goods sold5,700,0006,270,000

Variable operating costs2,280,0002,508,000

Total variable costs7,980,0008,778,000

Contribution margin8,220,0009,042,000

Fixed costs:

Fixed manufacturing costs2,100,0002,100,000

Fixed operating costs550,000550,000

Total fixed costs2,650,0002,650,000

Operating income$5,570,000$6,392,000

ABSORPTION COSTING INCOME Statement

April 2017May 2017

Revenues$16,200,000$17,820,000

Cost of goods sold:

Beginning inventory$0$1,250,000

Variable manufacturing costs6,650,0005,700,000

Allocated fixed manufacturing costs2,100,0001,800,000

Cost of goods available for sale8,750,0008,750,000

Less:Ending inventory(1,250,000)(500,000)

Adjustment for production-volume variance0300,000U

Cost of goods sold 7,500,0008,550,000

Gross margin8,700,0009,270,000

Operating costs:

Variable operating costs2,280,0002,508,000

Fixed operating costs550,000550,000

Total operating costs2,830,0003,058,000

Operating income$5,870,000$6,212,000

DATA

April

May

AprilMay

Direct material cost per unit$6,600$6,600

Direct manufacturing labor cost per unit1,8001,800

Manufacturing overhead cost per unit1,1001,100

Do income statements for Champion Motors in April and May 2017 under throughput costing.

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

Give one motivation for champion motors to adopt throughput costing

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