Question

Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year’s operations follow: Units in beginning inventory 0 Units produced 9,800 Units sold 9,400 Units in ending inventory 400 Variable costs per unit: Direct materials $ 64 Direct labor 33 Variable manufacturing overhead 13 Variable selling and administrative 15 Total variable cost per unit $ 125 Fixed costs: Fixed manufacturing overhead $ 303,800 Fixed selling and administrative 520,000 Total fixed costs $ 823,800 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 = Direct Materials + Direct Labor + Variable Manufacturing Overhead + Fixed Manufacturing Overhead per unit produced
Unit Product Cost = $64 + $33 + $13 + $303,800/9,800
Unit Product Cost = $110 + $31
Unit Product Cost = $141

Answer 2.

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead
Unit Product Cost = $64 + $33 + $13
Unit Product Cost = $110