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: 0 10,000 8,700 1,300 $ 60 40 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 10 30 140 $ 170,000 870,000 $1,040,000 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

Chuck Wagon Grills Inc. Requirement 1 Under variable costing, only the variable manufacturing costs are included in product costs Direct materials Direct labor Variable manufacturing overhead 10 Variable costing unit product cost 110 40 Note that selling and administrative expenses are not treated as product costs; that is, they are not included in the costs that are inventoried. These expenses are always treated as period costs. Requirement 2 Sales (8,700 units x $300 per unit) = $2,610,000 Variable expenses: Variable cost of goods sold (8,700 units x $110 per unit) = $957,000 Variable selling and administrative expenses (8,700 units x $30 per unit) = $261,000 Requirement 3 The break-even point in units sold can be computed using the contribution margin per unit as follows: Selling price per unit 300 Variable cost per unit 140 Contribution margin per unit 160