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		9,700
Units sold		8,400
Units in ending inventory		1,300
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	$	200,000
Fixed selling and administrative		1,160,000
Total fixed costs	$	1,360,000

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

REQ1
UNIT PRODUCT COST UNDER VARIABLE COSTING
Direct Material			80
Direct Labour			20
Vvariable Manufacturing OH			10
Total Product Cost			110
REQ2
CONTRIBUTION MARGIN INCOME STATEMENT
				Amount	Cost per unit
Sales revenue (8400 units @ 300)				2520000	300
Less: Variable Cost:
Material (8400 units @80)				672000	80
Labouor (8400 units @20				168000	20
Variable Mfg OH (8400 units @10)				84000	10
Variable Selling admin OH (8400 units @30)				252000	30
Total Variable cost				1176000	140
Contribution Margin				1344000	160
Less: Fixed Cost:
Fixed manufacturing OH				200000
Fixed Selling admin OH				1160000
Total fixed Cost				1360000
Net Income/(Loss)				-16000
Req 3:
Break even Point: Fixed Cost / Contribution margin per unit = 1360,000 /160 = 8500 units