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		10,300
Units sold		8,900
Units in ending inventory		1,400
Variable costs per unit:
Direct materials	$	80
Direct labor		40
Variable manufacturing overhead		10
Variable selling and administrative		30
Total variable cost per unit	$	160
Fixed costs:
Fixed manufacturing overhead	$	190,000
Fixed selling and administrative		150,000
Total fixed costs	$	340,000

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?

  

• Required 1

Assume that the company uses variable costing. Compute the unit product cost for one barbecue grill.

Unit product cost

• Required 2

Assume that the company uses variable costing. Prepare a contribution format income statement for last year.

Chuck Wagon Grills, Inc.
Variable Costing Income Statement

• Required 3

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

Break-even point

units

Answer 1

requirement 3

break even point = fixed cost / contribution margin =340000 / 40 = 8500