Management And Accounting Web

# Exhibit 8-6 With Cost of Goods Sold Calculations

From Management Accounting: Concepts, Techniques & Controversial Issues

Provided by James R. Martin, Ph.D., CMA
Professor Emeritus, University of South Florida

 Exhibit 8-6 Comparative Income Statements Absorption Costing Direct Costing Throughput Costing Sales \$31,680 Sales \$31,680 Sales \$31,680 Less COGS:* Less COGS:** Less COGS:*** BFG 0 BFG 0 BFG 0 COGM 20,895 COGM 14,925 COGM 9,950 Less EFG 105 20,790 Less EFG 75 14,850 Less EFG 50 9,900 Gross profit 10,890 Manf margin 16,830 Throughput 21,780 Less S&A expense 2,890 Less Var S&A 990 Less Oper Expense: Operating Income \$8,000 Contribution margin 15,840 Factory 11,000 Less Fixed costs 7,900 S&A 2,890 13,890 Operating Income \$7,940 Operating Income \$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.