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1. Sierra Company incurs the following costs to produce and sell a single product. Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative expenses Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative expenses $9 $10 $5 $3 $150,000 $400,000 During the last year, 25,000 units were produced and 22,000 units were sold. The Finished Goods inventory account at the end of the year shows a balance of $72,000 for the 3,000 unsold units. Requirement 1: (a) Is the company using absorption costing or variable costing to cost units in the Finished Goods inventory account? (b) Compute the total cost of finished goods inventory using variable costing and absorption costing. (Omit the "$" sign in your response.) Variable Costing Total cost Absorption Costing $ $ Requirement 2: Assume that the company wishes to prepare financial statements for the year to issue to its stockholders. (a) Is the $72,000 figure for Finished Goods inventory the correct amount to use on these statements for external reporting purposes? (b) At what dollar amount should the 3,000 units be carried in the inventory for external reporting purposes? (Omit the "$" sign in your response.) Finished goods inventory 2. Whitman Company has just completed its first year of operations. The company's absorption costing income statement for the year appears below: Whitman Company Income Statement Sales (35,000 units $25 per unit) $875,000 $ Cost of goods sold (35,000 units $16 per unit) Gross margin Selling and administrative expenses Net operating income 560,000 315,000 280,000 $35,000 The company's selling and administrative expenses consist of $210,000 per year in fixed expenses and $2 per unit sold in variable expenses. The $16 per unit product cost given above is computed as follows: Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead ($160,000 40,000 units) Absorption costing unit product cost $5 6 1 4 $16 Requirement 1: Redo the company's income statement in the contribution format using variable costing. (Input all amounts as positive values. Omit the "$" sign in your response.) $ Variable expenses: $ Contribution margin Fixed expenses: $ Requirement 2: Reconcile any difference between the net operating income on your variable costing income statement and the net operating income on the absorption costing income statement above. (Omit the "$" sign in your response.) Variable costing net operating income (loss) : Fixed manufacturing overhead cost deferred $ Absorption costing net operating income (loss) $ 3. Chuck Wagon Grills, Inc., makes a single producta handmade specialty barbecue grill that it sells for $210. Data for last year's operations follow: Units in beginning inventory .......................................... 0 Units produced .......................................................... Units sold .................................................................. Units in ending inventory .............................................. Variable costs per unit : Direct materials ........................................................ Direct labor .............................................................. Variable manufacturing overhead ................................. Variable selling and administrative ................................ Fixed costs : Fixed manufacturing overhead Fixed selling and administrative ..................................... ................................... 20,000 19,000 1,000 $50 80 20 10 $160 $700,000 285,000 $985,000 Required: 1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill. 2. Assume that the company uses variable costing. Prepare an income statement for the year using the contribution format. 3. What is the company's break-even point in terms of the number of barbecue grills sold