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 10,000 Units sold 8,600 Units in ending inventory 1,400 Variable costs per unit: Direct materials $ 80 Direct labor 20 Variable manufacturing overhead 10 Variable selling and administrative 30 Total variable cost per unit $ 140 Fixed costs: Fixed manufacturing overhead $ 160,000 Fixed selling and administrative 800,000 Total fixed costs $ 960,000 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

Computation of Units Product cost as per Variable Costing
Direct Materials per unit	$                  80.00
Direct labor per unit	$                  20.00
Variable Manufacturing overhead per unit	$                  10.00
Variable Selling & administrative overhead per unit	$                  30.00
Product Cost per unit	$                140.00
Income Statement as per Variable Costing
Sales(8,600*$300)		$      25,80,000
Less:Variable expenses:
Direct Materials	$             6,88,000
Direct labor	$             1,72,000
Manufacturing Overhead	$                86,000
Selling and administrative expenses	$             2,58,000
Total Variable Costs		$      12,04,000
Contribution Margin		$      13,76,000
Less:Fixed expenses:
Manufacturing Overhead	$             1,60,000
Selling and administrative expenses	$             8,00,000
Total Fixed Costs		$        9,60,000
Net Operating Income		$        4,16,000
Break-even Point(in units) =$960,000 / ($300-$140)
Break-even Point(in units) =$960,000 / $160 =6,000 units