Question

Chuck Wagon Grills, Inc., makes a single product-a handmade specialty barbecue grill that it sells for $200. Data for last year's operations follow: Units in beginning inventory Units produced Units sold Units in ending inventory Variable costs per unit: 10,400 8,200 2,200 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit 60 20 10 30 120 Fixed costs: Pixed manufacturing overhead Pixed selling and administrative Total fixed costs 160,000 240,000 400,000 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

a.	Unit product cost:
	Direct Material		$               60
	Direct Labor		$               20
	Variable Manufacturing overhead		$               10
	Unit product cost		$               90
b.	Chuck Wagon Grills Inc.
	Variable Costing Income Statement
	Sales(8200 X $200)		$ 16,40,000
Less:	Variable expenses:
	Variable cost of goods sold (8200 X $90)	$   7,38,000
	Variable selling and administrative expenses (8200 X $30)	$   2,46,000
			$   9,84,000
	Contribution margin		$   6,56,000
	Fixed Expenses:
Less:	Fixed Manufacturing overhead	$   1,60,000
	Fixed Selling and Administrative expenses	$   2,40,000
			$   4,00,000
	Net operating Income		$   2,56,000
c.	Break even point in units = Fixed cost / Contribution margin per unit
	Break even point in units	=	$400000 / $80
	Break even point in units	=	5000
	*Contribution margin per unit	=	$656000/8200 units
		=	$               80