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		0
Units produced		9,800
Units sold		8,300
Units in ending inventory		1,500
Variable costs per unit:
Direct materials	$	60
Direct labor		20
Variable manufacturing overhead		10
Variable selling and administrative		30
Total variable cost per unit	$	120
Fixed costs:
Fixed manufacturing overhead	$	180,000
Fixed selling and administrative		810,000
Total fixed costs	$	990,000

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 under Variable costing = $60 + $20 + $10 = $90

2. Contribution format Income statement

Chuck Wagon Grills, Inc. Variable Costing Income Statement
Sales		$2,490,000
Variable expenses:
Variable cost of goods sold	$747,000
Variable selling and administrative	$249,000
		$996,000
Contribution Margin		$1,494,000
Fixed expenses:
Fixed manufacturing overhead	$180,000
Fixed selling and administrative	$810,000
		$990,000
Net Operatig Income		$504,000

3. Break-even point = Fixed cost / Contribution per unit

Contribution per unit = $1,494,000 / 8,300 = $180

BEP = $990,000 / $180 = 5,500 units

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