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		0
Units produced		10,100
Units sold		8,000
Units in ending inventory		2,100
Variable costs per unit:
Direct materials		$   60
Direct labor		40
Variable manufacturing overhead		10
Variable selling and administrative		30
Total variable cost per unit		$ 140
Fixed costs:
Fixed manufacturing overhead	$	180,000
Fixed selling and administrative		240,000
Total fixed costs	$	420,000

  

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 the year.

          

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

     

Answer 1

Unit product cost under variable costing: Cost peir unit (S Particulars Direct materials Direct labor Variable manufact Unit product cost under variable costing 60 40 10 110 overhead Income statement under variable costing: Particulars Sales (8,000 units * $200 per unit Less: Variable Direct materials (8,000 units *$60 per unit Direct labor (8,000 units * $40 per unit Variable manufacturing overhead (8,000 units * $10 per unit Variable selling overhead (8.000 units * $30 per unit Total variable cost Contribution margin Less: Fixed cost: Fixed manufacturing overhead Fixed selling and administrative Total fixed cost Operating profit Amount (S Amount (S 1,600,000 cost: 480,000 320,000 80,000 240,000 1,120,000 480,000 180,000 240,000 420,000 60,000 3.

Break-even point in units: Total fixed cost/Contribution margin per unit Contribution margin per unit - Selling price per unit - Variable cost per unit -$200 S140 - $60 Break-even point in units - $420,000/S60 per unit 7000 Barbecue grills