Question

VERCISE 3-14 Variable Costing Unit Product Cost and Income Statement: Break-Even (L06-1, L00-4 Chuck Wagon Grills, Inc., makes a single product-a handmade specialty barbecue grill that it calls for $210. Data for last year's operations follow: 20,000 19,000 1,000 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 ...... $ 50 ....... $160 Fixed costs: Fixed manufacturing overhead .. Fixed selling and administrative Total fixed costs .... $700,000 285,000 $985,000 Required: 1. Assume that the company uses variable costing. Compute the unit product cost for one barbe- cue grill. 2. Assume that the company uses variable costing. Prepare a contribution format income state- ment for the 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	50
Direct labor	80
variable manufacturing overhead	20
Unit product cost	150

2) Income statement

Sales (19000*210)		3990000
Variable cost of goods sold (19000*150)		2850000
Manufacturing margin		1140000
Variable selling and administrative		190000
Contribution margin		950000
Fixed cost
Fixed manufacturing overhead	700000
Fixed selling and administrative	285000
Total fixed cost		985000
Net operating income (loss)		-35000

3) Break even unit = Fixed cost/Contribution margin per unit = 985000/(210-160) = 19700 Units