Question

Problem #2 Chuck Wagon Grills, Inc. makes a single product-a handmade specialty barbecue grill that it sells for $215. Data for last year's operations follows: Units in beginning inventory 0 Units produced 10,000 Units sold 9,100 Units in ending inventory 900 Variable costs per unit: Direct materials $61 Direct labor $38 Variable manufacturing overhead $11 Variable selling and administrative Total variable cost/unit $16 $126 Fixed costs: Fixed manufacturing overhead $350,000 Fixed selling and administrative $500,000 Total fixed costs $850,000 Requirements A. Assume the company uses absorption costing. Compute the unit product cost for one barbecue grill. B. Prepare an income statement for last year using absorption costing. Assume the total unit product cost for one barbecue grill is $145.

Answer 1

1)	unit product cost under Absorption costing
	Direct materials					61
	Direct labor					38
	Variable manufacturing overhead					11
	fixed manufacturing overhead			(350,000/10,000)		35
	unit product cost under Absorption costing					145
2)	Absorption costing income statement
	Sales					1956500
	cost of goods sold		(9100*145)			1319500
	Gross margin					637000
	fixed selling and administrative expense		(520,000+156400)			645,600
	net operating income (loss)					-8600