The Cost of Goods Sold Calculations and Some Graphic Illustrations

MAAW's Chapter 8 | MAAW's Book Main Page

Exhibit 8-6
Alternative Comparative Income Statements

       ABSORPTION  COSTING

     DIRECT COSTING

THROUGHPUT COSTING

Sales
Less COGS:*
  BFG                     0  
  COGM         20,895
  Less EFG         105
Gross profit
Less S&A expense
Operating Income

$31,680



20,790
10,890
2,890
$8,000
=====

Sales
Less COGS:**
  BFG                         0
  COGM             14,925
  Less EFG               75
Manufacturing margin
Less variable S&A expense
Contribution margin
Less fixed costs
Operating Income

$31,680



14,850
16,830
990
15,840
7,900
$7,940
=====

Sales
Less COGS:***
  BFG                          0
  COGM               9,950
  Less EFG                50
Throughput
Less Operating expenses:
  Factory   11,000
  S&A         2,890
Operating Income

$31,680



9,900
21,780


13,890
$7,890
=====

* Total manufacturing costs based on absorption costing are $21,000 including $10,000 direct material, $1,000 direct labor, $4,000 variable overhead and $6,000 fixed overhead. Cost of goods manufactured =  beginning work in process, plus total manufacturing costs, less ending work in process of (5)($21). Therefore COGM = 0 + $21,000 - $105 = $20,895. There are also five units in ending finished goods @ $21 = $105.

** Total manufacturing costs based on direct costing are $15,000 including direct material of $10,000, direct labor of $1,000 and variable overhead of $4,000. Cost of goods manufactured = beginning work in process, plus total manufacturing costs, less ending work in process of (5)($15). Therefore COGM = 0 + 15,000 - $75 = $14,925. There are also five units in ending finished goods @ $15 = $75.

*** Total manufacturing costs based on throughput costing are $10,000 including only direct material. Cost of goods manufactured = beginning work in process, plus total manufacturing costs, less ending work in process of (5)($10). Therefore COGM = 0 + $10,000 - 50 = $ 9,950. There are also five units in ending finished goods @ $10 = $50.

 

NOTE: This problem is designed so that there are no variances to confuse the issue. For example, overhead rates are based on 1,000 units and the company produced 1,000 units, so there is no capacity related variance. The data for this problem are from the backflush example in Chapter 8. The calculations above are based on the procedure illustrated in Chapter 2.