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Hi
I had a question come up in my exam that gave me the absorption costing profit, the marginal costing profit and asked what would be the profit using throughput costing. They only provided a standard cost card. How would you go about this as I have not come across this in any of the practice exams or even in any of the study notes.
Thanks its really bugging me and as I failed I want to know how to do this in case it comes up again.
That is an interesting problem and one that would likely take a bit of time to work out in the exam ( so one to be flagged for the end if it does appear again).
The difference between marginal and throughput costing is that marginal has all variable costs – whereas throughput has direct material costs only.
So you would need to remove the labour and variable overheads costs from the marginal cost and find the total to lump together as part of Total Factory Costs (the term for all overheads + labour in throughput environment.
The rest of Total factory Costs could be found by calculating the absorption rate & comparing to number of units budgeted to find the overhead apportioned. All of this overhead also goes to Total Factory costs.
Throughput profit will be
Sales less direct material costs
less ALL labour + variable overheads in the period
less ALL fixed overheads in the period.
= Throughput profit.Hope that explains ok
Cath
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