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Throughput Costing
This costing method, sometimes called super-variable costing, considers only direct materials as a product cost. The remaining costs are all considered period costs and expensed in the period in which they are incurred.
How Net Income is Affected
Net income calculated using throughout costing is higher than absorption and variable costing net incomes when the number of units produced is lower than units sold; and throughput net income it is lower than the other costing methods when the number of units produced is greater than units sold.
Throughput Costing Income Statement
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Example: Throughput Costing
ABC Inc manufactures scientific calculators primarily used by high school students. On a typical month, the company will produce 220,000 units, however in May 2020, the company produced 200,000 units, and sold 187,000 at a price of $20 per unit. The costs incurred are as follows:
Direct Materials: $100,000
Direct Labour: $120,000
Variable Manufacturing Overhead: $140,000
Fixed Manufacturing Overhead: $300,000
Variable Selling & Administrative Costs: $20,000
Fixed Selling & Administrative Costs: $90,000
Prepare an income statement using throughput costing.
Practice: Throughput Costing
Washburn Coolers manufactures and sells one product. The following information pertains to each of the company's first three years of operations.
This year, Washburn Coolers produced 40,000 units and sold 28,000. Budgeted volume for the year was 50,000. The company sells its product for $100 per unit.
What is the company's net income in 2020 using throughput costing?