Question

Required information SB Exercise 6-14 through Exercise 6-15 (Static) Skip to question [The following information applies to the questions displayed below.] 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 20,000 Units sold 19,000 Units in ending inventory 1,000 Variable costs per unit: Direct materials $ 50 Direct labor 80 Variable manufacturing overhead 20 Variable selling and administrative 10 Total variable cost per unit $ 160 Fixed costs: Fixed manufacturing overhead $ 700,000 Fixed selling and administrative 285,000 Total fixed costs $ 985,000 Exercise 6-15 (Static) Absorption Costing Unit Product Cost and Income Statement [LO6–1, LO6–2]
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:

Results are below.

Explanation:

The absorption costing method includes all costs related to production, both fixed and variable. The unit product cost is calculated using direct material, direct labor, and total unitary manufacturing overhead.

First, we need to calculate the unitary cost under absorption costing:

Unitary varaible production cost= 50 + 80 + 20= $150

Unitary fixed cost= 700,000/20,000= $35

Total unitary cost= $185

Now, we the income statement:

Sales= 19,000*210= 3,990,000

COGS= (19,000*185)= (3,515,000)

Gross profit= 475,000

Total selling and administrative= (285,000 + 10*19,000)= (475,000)

Net operating income= 0