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    Emerson Corporation: Throughput costing, absorption costing and variable costing

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    Emerson Corporation which uses throughput costing just completed its first year of operations. Planned and actual production equaled 10,000 units and sales total 9600 units at $72 per unit. Costs data for the year are as follows:

    Direct material per unit $12.00
    Conversion Costs
    Direct Labor $45,000
    Variable manufacturing overhead $65,000
    Fixed manufacturing overhead $220,000
    Selling and administrative costs
    Variable per unit $8.00
    Fixed $118,000

    The company classifies only direct material as a throughput cost.

    1. Compute the company's total cost for the year assuming that variable manufacturing costs are driven by the number of units produced and variable selling and administrative costs are driven by the number of units sold.

    2. How much of this cost would be held in year-end inventory under (a) absorption costing (b) variable costing and (c) throughput costing.

    3. How much of the company's total cost for the year would be included as an expense on the period's income statement under (a) absorption costing (b) variable costing and (c) throughput costing.

    4. Prepare Emerson's throughput costing income statement.

    5. Show the solution if the following information was changed: direct material cost is $11.00 per unit and the total direct labor cost is $46,000.

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    Solution Preview

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    Emerson Corporation
    Data
    Solution
    1. Compute the company's total cost for the year assuming that variable manufacturing costs are driven by the number of units produced and variable selling and administrative costs are driven by the number of units sold.
    Actual production 10000
    Sales 9600
    Per unit Total
    Selling price $72 $691,200 Selling price per unit*Number of units sold
    Direct material $12 $120,000 Direct labor cost/ number of units produced
    Direct labor 4.5 45000 Direct material price per unit* number of units produced
    Variable manufacturing overhead 6.5 65000 Variable manufacturing overhead/ number of units produced
    Fixed manufacturing overhead 220000
    Variable Selling and administrative overhead $8 $76,800 Variable Selling and administrative cost per unit *number of units sold
    Fixed selling and administrative cost 118000 Sum of all the costs.
    Total cost $644,800

    2. How much of this cost would be held in year-end inventory under  (a) absorption costing (b) variable costing and (c) throughput costing.
    Calculation of cost of ending inventory under absorption costing
    Amount Amount
    Direct material $120,000
    Direct labor $45,000
    Variable manufacturing overhead 65000
    Fixed manufacturing overhead 220000
    Total cost of production $450,000
    Number of units produced 10000
    Number of units in ending inventory 400 number of units produced -number of units sold
    Cost of ending inventory under absorption costing = Total cost of production/ number of units produced* number of units in ending inventory*==$450000/10000*400=
    Note: in absorption costing Direct material cost, direct labor cost , variable manufacturing cost and fixed costs are inventoriable cost.

    Calculation of cost of ending inventory under Variable costing
    Per unit Total
    Direct ...

    Solution Summary

    The solution provides detailed calculations for good explanation of the methodology to compute various costing methods for Emerson Corporation. In addition, each response is supported by narrative for further information and understanding.

    $2.19

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