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		10,500
Units sold		8,700
Units in ending inventory		1,800
Variable costs per unit:
Direct materials	$	80
Direct labor		20
Variable manufacturing overhead		10
Variable selling and administrative		30
Total variable cost per unit	$	140
Fixed costs:
Fixed manufacturing overhead	$	200,000
Fixed selling and administrative		160,000
Total fixed costs	$	360,000

1. Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill. ALREADY HAVE THIS AS $110

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

Contribution format income statement under variable costing

Particulars	Amount ($)	Amount ($)
Sales (8700*200)		1,740,000
Less: variable costs
Direct materials (8700*80)	696,000
Direct labor (8700*20)	174,000
Variable manufacturing overhead (8700*10)	87,000
Variable selling overhead (8700*30)	261,000
Total variable cost		1,218,000
Contribution margin (1740,000-1218,000)		522,000
Less: fixed cost
Fixed manufacturing overhead	200,000
Fixed selling and administrative overhead	160,000
Total fixed cost		360,000
Operating profit		$ 162,000

Computation of breakeven point

Breakeven point = fixed cost/contribution per unit

Contribution per unit = 200-140 = $ 60

Breakeven point = 360,000/60 = 6000 units

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