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: 10,300 8,700 1,600 Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit Fixed costs: Fixed manufacturing overhead Fixed selling and administrative Total fixed costs 30 120 $ 190,000 890,000 $1,000,000 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) Unit product cost

Direct material	60
Direct labor	20
Variable manufacturing overhead	10
Unit product cost	90

2) Contribution margin income statement

Sales (8700*300)		2610000
Less: Variable cost of goods sold
Direct material (8700*60)	522000
Direct labor (8700*20)	174000
Variable manufacturing overhead	87000
Total variable cost of goods sold		783000
Manufacturing margin		1827000
variable selling and administrative expense		261000
Contribution margin		1566000
Less: Fixed cost
Fixed manufacturing overhead	190000
Fixed selling and administrative expense	890000
Total Fixed cost		1080000
Net income		486000

c) Break even unit = Fixed cost/Contribution margin per unit = 1080000/(300-120) = 6000 Units