Question

Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $200. Data for last year’s operations follow:

  

Units in beginning inventory		0
Units produced		10,400
Units sold		8,100
Units in ending inventory		2,300
Variable costs per unit:
Direct materials	$	60
Direct labor		20
Variable manufacturing overhead		10
Variable selling and administrative		30
Total variable cost per unit	$	120
Fixed costs:
Fixed manufacturing overhead	$	170,000
Fixed selling and administrative		470,000
Total fixed costs	$	640,000

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 a contribution format income statement for last year.

3. What is the company’s break-even point in terms of the number of barbecue grills sold?

Answer 1

1.

Calculation of Unit Product Cost under Variable Costing
Direct materials	60
Direct labor	20
Variable manufacturing overhead	10
Unit product cost	$90

2.

Chuck Wagon Grills, Inc.
Variable costing Income Statement
Sales (8,100 x 200)		$1,620,000
Less: Variable expense:
Direct materials (8,100 x 60)	486,000
Direct labor (8,100 x 20)	162,000
Variable manufacturing overhead (8,100 x 10)	81,000
Variable selling and administrative expenses (8,100 x 30)	243,000
Total Variable expenses		-972,000
Contribution Margin		$648,000
Less: Fixed expense:
Fixed manufacturing overhead	170,000
Fixed selling and administrative expenses	470,000
Total fixed expenses		-640,000
Net Income		$8,000

3.

Total variable cost per unit = $120

Selling price per unit = $200

Contribution margin per unit = Selling price per unit- Total variable cost per unit

= 200-120

= $80

Total fixed costs = $640,000

Break even point in units = Total fixed costs/ Contribution margin

= 640,000/80

= 8,000 units

The company’s break-even point in terms of the number of barbecue grills sold = 8,000

Kindly comment if you need further assistance.

Thanks‼!