Question

Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $205. Data for last year’s operations follow: Units in beginning inventory 0 Units produced 10,300 Units sold 9,400 Units in ending inventory 900 Variable costs per unit: Direct materials $ 60 Direct labor 34 Variable manufacturing overhead 13 Variable selling and administrative 19 Total variable cost per unit $ 126 Fixed costs: Fixed manufacturing overhead $ 298,700 Fixed selling and administrative 515,000 Total fixed costs $ 813,700 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.

Assume that the company uses absorption costing. Compute the unit product cost for one barbecue grill.

Unit product cost

Assume that the company uses absorption costing. Prepare an income statement for last year.

Chuck Wagon Grills, Inc.
Absorption Costing Income Statement
Net operating income (loss)

Answer 1

1. Calculation of unit product cost for one barbecue grill

Direct material	$60
Direct labour	$34
Variable manufacturing overhead	$13
Fixed manufacturing overhead ($298,700 / 10,300)	$29
Unit product cost	$136

2. Income statement

Sales (9,400 * $205)	$1,927,000
Less: Cost of goods sold (9,400 * $136)	-$1,278,400
Gross margin	$648,600
Less: Selling and administrative exp (9,400 * $19 + $515,000)	$693,600
Net operating income (loss)	-$45,000