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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 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.

#### Solution Preview

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
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
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