Question

Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $300. Data for last year’s operations follow:

  

Units in beginning inventory		0
Units produced		10,300
Units sold		8,800
Units in ending inventory		1,500
Variable costs per unit:
Direct materials	$	80
Direct labor		40
Variable manufacturing overhead		10
Variable selling and administrative		30
Total variable cost per unit	$	160
Fixed costs:
Fixed manufacturing overhead	$	150,000
Fixed selling and administrative		1,040,000
Total fixed costs	$	1,190,000

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 + fixed manufacturing overhead

= $80+$40+$10

= $130 per barbeque grill

2)-

CHUCL WAGON GRILLS INC.
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	8800 units*$300 per unit		2640000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		1339000
Direct materials	10300 units*$80 per unit	824000
Direct labor	10300 units*$40 per unit	412000
Variable manufacturing overhead	10300 units*$10 per unit	103000
Variable cost of goods available for sale		1339000
Less:- Closing inventory	1500 units*$130 per unit	195000	1144000
Gross contribution margin C= a-b			1496000
Less:-Variable selling & administrative exp.	8800 units*$30 per unit		264000
Contribution margin			1232000
Less:- Fixed costs
Manufacturing overhead			150000
Selling & administrative exp.			1040000
Net Income			42000

3)-The company’s break-even point in terms of the number of barbecue grills sold = 8500 barbecue grills.

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

= ($150000+$1040000)/$140 per unit

= 8500 barbecue grills

Where-Contribution margin per unit = Selling price per unit - Variable costs per unit

= $300 per unit - $160 per unit

= $140 per unit