Question

Exercise 6-14 Variable Costing Unit Product Cost and Income Statement; Break-Even Analysis (LO6-1, LO6-2] 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: 9,800 8,9ee 900 se 20 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 $ $ 180, eee 1,180, eee $1,360, eee 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

Answer 1.

Unit Product Cost = Direct Materials + Direct Labor + Variable Manufacturing Overhead
Unit Product Cost = $80 + $20 + $10
Unit Product Cost = $110

Answer 2.

$ 2,670,000 Chuck Wagon Grills, Inc. Variable Costing Income Statement Sales Variable Expenses: Variable Cost of Goods Sold 979,000 Variable Selling and Administrative Expenses $ 267,000 $ $ 1,246,000 1,424,000 Contribution Margin Fixed Expenses: Fixed Manufacturing Overhead Fixed Selling and Administrative Expenses $ $ 180,000 1,180,000 $ $ 1,360,000 64,000 Net Operating Income

Sales = Selling Price per unit * Units Sold
Sales = $300 * 8,900
Sales = $2,670,000

Variable Cost of Goods Sold = Unit Product Cost * Units Sold
Variable Cost of Goods Sold = $110 * 8,900
Variable Cost of Goods Sold = $979,000

Variable Selling and Administrative Expenses = Variable Selling and Administrative Expenses per unit * Units Sold
Variable Selling and Administrative Expenses = $30 * 8,900
Variable Selling and Administrative Expenses = $267,000

Answer 3.

Contribution Margin per unit = Contribution Margin / Units Sold
Contribution Margin per unit = $1,424,000 / 8,900
Contribution Margin per unit = $160

Breakeven Point in units = Fixed Costs / Contribution Margin per unit
Breakeven Point in units = $1,360,000 / $160
Breakeven Point in units = 8,500