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		10,300
Units sold		9,000
Units in ending inventory		1,300
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	$	200,000
Fixed selling and administrative		20,000
Total fixed costs	$	220,000

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

Requirement 1

Cost per unit
Direct material	$    80.00
Direct labor	$    40.00
Variable manufacturing overheads	$    10.00
Unit cost per barbecue grill	$ 130.00

Fixed Manufacturing overhead are not assigned to unit cost in variable costing.

Requirement 2

Income Statement
Variable Costing
Sales Revenue	$ 1,800,000.00
Variable cost
Variable production cost	$ 1,170,000.00
Variable selling expenses	$      270,000.00
Total Variable cost	$ 1,440,000.00
Contribution margin	$      360,000.00
Fixed Production cost	$      200,000.00
Fixed selling expenses	$        20,000.00
Total Fixed cost	$      220,000.00
Net income	$      140,000.00

Requirement 3

A	Total fixed cost	$ 220,000.00
B=Sales price -Total variable cost	Contribution margin per unit (200-160)	$            40.00
C=A/B	Breakeven units	5500

Company’s break-even point in terms of the number of barbecue grills sold=5500 units