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		9,600
Units sold		8,600
Units in ending inventory		1,000
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		1,030,000
Total fixed costs	$	1,200,000

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?

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

	Unit product cost

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

	Chuck Wagon Grills, Inc. Variable Costing Income Statement       0 0 0 $0

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

  	Break-even point    units

Answer 1

Requirement: 1 Unit Product cost using Variable Costing Direct Material Direct Labor Variable Overhead Cost per unit 80.00 20.00 10.00 110.00 2580000 946000 258000 Requirement: 2 Variable costing income statement Sales ( 8600 * $300 Per unit) Variable Expense Variable cost of goods sold (@110) Variable Selling and Administrative Expense (@30) Total Varible Expenses Contribution Margin Fixed Expenses : Fixed manufacturing Overheads Fixed Sellingand Administrative Expenses Total fixed Expenses Net Operating Income 1204000 1376000 170000 1030000 1200000 176000

Requirement: 3 Break even point = Fixed cost / Contribution margin per unit Fixed cost 1200000 Contribution margin = $300 - 140 160.00 Break even point units 7500