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		10,100
Units sold		8,100
Units in ending inventory		2,000
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	$	170,000
Fixed selling and administrative		1,270,000
Total fixed costs	$	1,440,000

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

1) Computation of unit product cost of barbecue grill

____________________________________________________

Particulars per unit ( in $ )

_____________. _________________

Direct material 80

Direct labour 20

Variable manufacturing overhead 10

_____________

Unit product cost of for one. $110

Barbeque grill _____________

  

Note : variable selling and administration cost per unit is not included in unit priprod cost because it is period cost and is expenses when incurred .

2) Chuck wagon grill ,Inc income statement

__________________________________________

Particulars Amount (in $ )

___________ ________________

Sales (8100*$300) 2430000

Variable expenses:

____________________

Variable cost of goods sold ( 891000)

Variable cost of selling and administration (243000)

(8100*30)

_________________

Contribution margin. $ 1296000

Fixed expenses:

_________________

Fixed manudmanufact overhead ( $ 170000)

Fixed selling and administration ($ 1270000)

______________________

Net income/loss ($144000)

______________________

3) Computation of break even point

____________________________________

Break even point = fxed cost /contribution matmar per unit

Given:

Sales price per unit = $ 300

Variable cost per unit =$ 140

Contribution margin per barbecue grill = $300 - $140

= $160

Total fixed cost = fixed manufacturing + fixed selling and

overhead administration

= $170000+$1270000

= $ 1440000

Break even point= $1440000/160

= 9000 in number

Break even point = 9000 numberof barbecue grills