Question

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:

The full question is "Exercise 6-15 Absorption Costing Unit Product Cost and Income Statement [LO6-1, LO6-2] 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 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."

1.  Using absorption costing to compute the unit product cost for one barbecue grill

Particulars                                       Amount

Direct material                                    $50

Direct labor                                         $80

Variable manufacturing overhead    $20

Fixed manufacturing overhead         $35    ($700000/20000)

Unit product cost                              $185

2. Assume that the company uses absorption costing. Prepare an income statement.

Particulars                                                        Amount

Sales (19000*210)                                        $3,990,000

Less: Cost of goods sold (19000*185)       ($3,515,000)

Gross margin                                               $475,000

Less: Selling and administrative expense ($475,000) (19000*10+285000)

Net operating income                                      $0