Question

Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $220. Data for last year’s operations follow: Units in beginning inventory 0 Units produced 9,700 Units sold 9,200 Units in ending inventory 500 Variable costs per unit: Direct materials $ 61 Direct labor 33 Variable manufacturing overhead 11 Variable selling and administrative 16 Total variable cost per unit $ 121 Fixed costs: Fixed manufacturing overhead $ 281,300 Fixed selling and administrative 520,000 Total fixed costs $ 801,300 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

Answer:-1)-Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

= $61+$33+$11+$29

= $134 per barbecue grill

Explanation:- Unit fixed manufacturing overhead= Fixed manufacturing overhead/No. of units produced

= $281300/9700 units

=$29 per barbecue grill

2)-

CHUCK WAGON GRILLS INC.
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	9200 units*$220 per unit		2024000
Less:- Cost of goods sold (b)
Opening inventory		Nil
Add:- Cost of goods manufactured		1299800
Direct materials	9700 units*$61 per unit	591700
Direct labor	9700 units*$33 per unit	320100
Variable manufacturing overhead	9700 units*$11 per unit	106700
Fixed manufacturing overhead		281300
Cost of goods available for sale		1299800
Less:- Closing inventory	500 units*$134 per unit	67000	1232800
Gross margin C= a-b			791200
Less:-Variable selling & administrative exp.	9200 units*$16 per unit		147200
Less:- Fixed costs
Selling & administrative exp.			520000
Net Income			124000