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		8,700
Units in ending inventory		1,600
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	$	160,000
Fixed selling and administrative		520,000
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

Unit Product Cost	90.00
Direct Material	60.00
Direct Labour	20.00
Manufacturing OH (Variable)	10.00
Total Product Cost	90.00
Chuck Wagon Grills
Variable Costing Income Statement
Sales		1,740,000
Less: Variable Cost
Direct Material	522000
Direct Labour	174000
Manufacturing OH (Variable)	87000
Less:Selling and Administrative Expense(Variable)	261000
Total Variable Cost		1044000
Contribution Margin		696,000
Less: Fixed Expenses
Fixed Manufacturing OH	160000
Selling and Administrative Expense(Fixed)	520000	680000
Net Income		16,000

BREAK EVEN UNITS = Total fixed cost/ contributon margin per unit
=680000 / 80
8,500	Units