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		8,700
Units in ending inventory		1,700
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	$	190,000
Fixed selling and administrative		490,000
Total fixed costs	$	680,000

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

Answer:- 1)-Unit product cost under Variable costing:-Direct materials + Direct Labor + Variable manufacturing overhead

=$60+$20+$10 = $90 per unit

2)-

Chuck Wagon Grills Inc.
Contribution Margin statement (Using Variable costing approach)
Particulars			Amount
			$
Sales (a)	8700 units*$200 per unit		1740000
Less:- Variable cost of goods sold (b)
Opening inventory
Add:- Variable cost of goods manufatured	10400 units*$90 per unit	936000
Variable cost of goods available for sale		936000
Less:- Closing inventory	1700 units*$90 per unit	153000	783000
Gross contribution margin C= a-b			957000
Less:-Variable selling & administrative exp.	8700 units*$30 per unit		261000
Contribution margin			696000
Less:- Fixed costs:-
Manufacturing overhead			190000
Selling & administrative exp.			490000
Net Income			16000

3)-

Break even point in sales units= Fixed costs/ Contribution margin per unit

=($190000+$490000)/$200-$120

=$680000/$180 per unit

=8500 units