Prepared by Diane Tanner University of North Florida 1 Throughput Costing ACG

What is Throughput Costing?  An alternative method of which costs are assigned as ‘product’ costs versus period costs  An alternative to variable and absorption costing  Also known as super-variable costing  Only direct materials are assigned to products  Direct labor and all manufacturing overhead costs are treated as period costs  Expensed when incurred  Rationale  Some managers take the view that only direct materials are truly variable and are the only costs that should be inventoried

Reporting on the Balance Sheet  Finished goods inventory  Throughput costing  Includes only direct materials cost  Variable costing  Includes direct materials, direct labor, and variable overhead  Absorption costing  Includes direct materials, direct labor, variable and fixed overhead 3

Comparing the Margins on the Income Statement Sales (400 x $15) $6,000 Direct materials (400 x $6) 2,400 Throughput contribution 4,600 Direct labor (400 x $2.50) $1,000 Variable MOH (400 x $1.50) 600 Variable SG&A (400 x $1) 400 2,000 Contribution margin 2,600 Add back variable SG&A 400 Less fixed MOH (1,100) Gross margin $1,900 4 Only product costs are components of gross margin Waco Inc. sold 400 widgets during May at $15 each. Each widget cost $6 of direct materials, $2.50 of direct labor, $1.50 of variable manufacturing overhead, and $1 of variable selling and general admin costs. Total fixed cots were $1,100 for production and $300 for selling and general admin.

Combinations  Throughput costing can be combined with  Actual costing  Normal costing  Standard costing 5

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