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		8,600
Units in ending inventory		1,800
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	$	160,000
Fixed selling and administrative		140,000
Total fixed costs	$	300,000

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)	8600 units*$200 per unit		1720000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		1352000
Direct materials	10400 units*$80 per unit	832000
Direct labor	10400 units*$40 per unit	416000
Variable manufacturing overhead	10400 units*$10 per unit	104000
Variable cost of goods available for sale		1352000
Less:- Closing inventory	1800 units*$130 per unit	234000	1118000
Gross contribution margin C= a-b			602000
Less:-Variable selling & administrative exp.	8600 units*$30 per unit		258000
Contribution margin			344000
Less:- Fixed costs
Manufacturing overhead			160000
Selling & administrative exp.			140000
Net Income			44000

3)-The company’s break-even point in terms of the number of barbecue grills sold = 7500 barbecue grills.

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

= ($160000+$140000)/$40 per unit

= 7500 barbecue grills