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		10,400
Units sold		9,300
Units in ending inventory		1,100
Variable costs per unit:
Direct materials	$	64
Direct labor		32
Variable manufacturing overhead		13
Variable selling and administrative		16
Total variable cost per unit	$	125
Fixed costs:
Fixed manufacturing overhead	$	364,000
Fixed selling and administrative		525,000
Total fixed costs	$	889,000

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 for one barbecue grill = Direct materials + Direct labor + Variable manufacturing overhead + Total Fixed manufacturing overhead/Units produced

= 64 + 32 + 13 + 364,000/10,400

= 64 + 32 + 13 + 35

= $144

2.

Income statement

Sales (9,300 x 215)	1,999,500
Cost of goods sold (9,300 x 144)	- 1,339,200
Gross profit	660,300
Variable selling and administrative (9,300 x 16)	- 148,800
Fixed selling and administrative	- 525,000
Net loss	- $13,500

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