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 Units produced Units sold Units in ending inventory Variable costs per unit: 10,500 8,200 2,300 Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Total variable cost per unit 60 40 10 30 140 Fixed costs: Fixed manufacturing overhead Fixed selling and administrative Total fixed costs $ 160,000 800,000 $960,000 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	60
Direct labour	40
Variable manufacturing overhead	10
Unit product cost	110

2) Contribution format income statement :

Sales		2460000
Variable cost of goods sold
Direct material	492000
Direct labour	328000
Variable manufacturing overhead	82000
Total variable cost of goods sold		902000
Manufacturing margin		1558000
Variable selling and administrative expense		246000
Contribution margin		1312000
Fixed cost
Fixed manufacturing overhead	160000
Fixed selling and administrative expense	800000
Total fixed cost		960000
Net operating income		352000

3) Break even point = 960000/(300-140) = 6000 Units