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		10,100
Units sold		9,200
Units in ending inventory		900
Variable costs per unit:
Direct materials	$	62
Direct labor		31
Variable manufacturing overhead		13
Variable selling and administrative		17
Total variable cost per unit	$	123
Fixed costs:
Fixed manufacturing overhead	$	343,400
Fixed selling and administrative		510,000
Total fixed costs	$	853,400

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

Product unit cost calculation
Direct material	$         570,400.00
Direct labor	$         285,200.00
Variable manufacturing overheads	$        119,600.00
Fixed manufacturing overheads (See working note 1 below)	$         312,800.00
Total Cost of Goods sold       (A)	$     1,288,000.00
Total units sold        (B)	9200
Unit cost      (A/B)	$                 140.00

Requirement 1

Unit product cost for one barbecue grill=$140

Requirement 2

Chuck Wagon Grills, Inc.
Income Statement
Absorption costing
Sales	$       1,978,000.00
Cost of Goods sold	$       1,288,000.00
Gross profit	$           690,000.00
Selling and Administrative expenses *	$           666,400.00
Net Operating Income	$             23,600.00

* (17*9200)+510000

Working note 1
Total Fixed Manufacturing Overheads	$         343,400.00
Units Produced	10100
Cost pewr unit produced	$ 34.00
Fixed cost assigned to goods sold (9200 x 34)	$         312,800.00
Fixed cost assigned to Ending Inventory (900 x 34)	$           30,600.00