Question

Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $215. Data for last year’s operations follow:

Units in beginning inventory		0
Units produced		9,800
Units sold		9,100
Units in ending inventory		700
Variable costs per unit:
Direct materials	$	63
Direct labor		39
Variable manufacturing overhead		12
Variable selling and administrative		21
Total variable cost per unit	$	135
Fixed costs:
Fixed manufacturing overhead	$	313,600
Fixed selling and administrative		520,000
Total fixed costs	$	833,600

Required:

1. Assume that the company uses absorption costing. Compute the unit product cost for one barbecue grill.

2. Assume that the company uses absorption costing. Prepare an income statement for last year.

Answer 1

1. Unit product cost under absorption costing

Direct materials	$63
Direct Labour	$39
Variable manufacturing overhead	$12
Fixed manufacturing overhead($313,600/9,800)	$32
Unit product cost	$146

2. Income statement under Absorption costing

Sales (9,100×$215)	$1,956,500
Cost of goods sold (9,100×$146)	$1,328,600
Gross margin	$627,900
Selling and administrative overheads	$711,100
Net income or(loss)	($83,200)

____×____

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