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		8,900
Units in ending inventory		800
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	$	150,000
Fixed selling and administrative		890,000
Total fixed costs	$	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

1) Unit product cost

Direct material	80
Direct labor	20
Variable manufacturing overhead	10
Unit product cost	110

2) Contribution format income statement

Sales (8900*300)		26700000
Variable cost of goods sold (8900*110)		979000
Manufacturing margin		1691000
Variable selling and administrative expense (8900*30)		267000
Contribution margin		1424000
Fixed cost
Fixed manufacturing overhead	150000
Fixed selling and administrative	890000
Total fixed cost		1040000
Net income		384000

3)Break even unit = Fixed cost/Contribution margin per unit = 1040000/(300-140) = 6500 Units