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Variable / Absorption costing - income statement

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.

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

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