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    Variable / Absorption costing - income statement

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    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 admin. 10

    Total variable cost per unit $160

    Fixed Costs:
    Fixed Manufacturing Overhead $700,000
    Fixed Selling and Admin. 285,000

    Total Fixed Costs $985,000

    1. Assume the company uses variable costing. Compute the unit product cost for one barbecue grill.
    2. Assume the company uses variable costing. Prepare a contribution format income statement for the year.
    3. What is the company's break-even point in terms of of the number of barbecue grills sold?

    Refer to the data above. Assume absorption costing is used:
    1. Compute the product cost for one barbecue grill.
    2. Prepare an income statement.

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    Solution Preview

    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 admin. 10

    Total variable cost per unit $160

    Fixed Costs:
    Fixed Manufacturing Overhead $700,000
    Fixed Selling and Admin. 285,000

    Total Fixed Costs ...

    Solution Summary

    The solution explains how to determine the unit cost and prepare income statement using variable/absorption costing

    $2.19