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		10,000
Units sold		8,800
Units in ending inventory		1,200
Variable costs per unit:
Direct materials	$	60
Direct labor		40
Variable manufacturing overhead		10
Variable selling and administrative		30
Total variable cost per unit	$	140
Fixed costs:
Fixed manufacturing overhead	$	180,000
Fixed selling and administrative		330,000
Total fixed costs	$	510,000

Required:

1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill.

Unit product cost____________

2. Assume that the company uses variable costing. Prepare a contribution format income statement for the year.

Chuck Wagon Grills, Inc.
Variable Costing Income Statement
Variable expenses:
		0
		0
Fixed expenses:
		0

Answer 1

1

Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill.

Answer: Unit product cost_____$110_______

Working notes for the above answer is as under

Calculation for Unit product cost under variable costing

	Amount $
Direct Material	60
Direct Labor	40
variable Manufacturing Overhead	10
unit product cost as per variable costing	110

Unit product cost_____$110_______

___________________________________

2

Chuck Wagon Grills, Inc.
Variable Costing Income Statement
Sales (8800*200)		1760000
Variable expenses:
Cost of goods sold (8800*110)	968000
Selling and admin (8800*30)	264000
Total variable cost		1232000
Contribution margin		528000
Fixed expenses:
Fixed manufacturing overhead	180,000
Fixed selling and administrative	330,000
Total Fixed expenses		510,000
Net operating income		18,000