Question

Grills, Inc. makes a single product - a handmade specialty barbeque grill that sells for $700. Data for last year’s operations follow:

                                    Units in beginning inventory              0

                                    Units produced                          50,000

                                    Units sold                                   40,000

                                   

                       

                                    Variable costs per unit:

                                    Direct materials                                   $      200

                                    Direct labor                                                 100

                                    Variable manufacturing overhead                70

                                    Variable selling and administrative              30

                                    Total variable cost per unit                 $      400

                                    Fixed costs:

                                    Fixed manufacturing overhead        $1,500,000

                                    Fixed selling and administrative         500,000

                                    Total fixed costs                               $2,000,000

                        Required:

a) Compute the unit product cost for one barbeque grill for absorption costing, variable costing, and throughput costing.

b) Prepare an income statement for the year using the absorption costing approach.

c) Prepare an income statement for the year using the variable costing approach.

d) Explain the difference in operating income for the absorption and variable costing approaches.

Answer 1