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		9,700
Units sold		8,900
Units in ending inventory		800
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	$	160,000
Fixed selling and administrative		350,000
Total fixed costs	$	510,000

Required:

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

Unit production cost

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?

What is the company’s break-even point in terms of the number of barbecue grills sold?

	Break-even point units

Complete this question by entering your answers in the tabs below.

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

	Chuck Wagon Grills, Inc. Variable Costing Income Statement Sales $1,780,000 Variable expenses: 0 1,780,000 0 $1,780,000

Answer 1

1. Unit product cost under variable costing: $110

Direct materials	60
Direct labor	40
Variable manufacturing overhead	10
Unit product cost $	110

2.

Chuck Wagon Grills, Inc.
Variable Costing Income Statement
Sales (8900 x $200)		1780000
Variable expenses:
Direct materials (8900 x $60)	534000
Direct labor (8900 x $40)	356000
Variable manufacturing overhead (8900 x $10)	89000
Variable selling and administrative (8900 x $30)	267000
Total variable expenses		1246000
Contribution margin		534000
Fixed costs:
Fixed manufacturing overhead	160000
Fixed selling and administrative	350000
Total fixed costs		510000
Net operating income		24000

3. Break-even point: 8500 units

Break-even point (units) = Total fixed costs/Contribution per unit

Total fixed costs = $510000

Contribution per unit = Sales price - Variable costs = $200 - $140 = $60

Break-even point = $510000/$60 = 8500