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		9,700
Units sold		9,000
Units in ending inventory		700
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		1,260,000
Total fixed costs	$	1,440,000

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

>All working forms part of the answer

>Requirement 1

Direct materials	$60
Direct labor	$20
Variable manufacturing overhead	$10
Unit Product Cost for one barbecue grill	$90 = Answer

>Requirement 2: Contribution margin Income Statement

Sales		$2,700,000
Less: Variable Expenses
Direct Material	$540,000
Direct Labor	$180,000
Variable manufacturing overhead	$90,000
Variable selling & administrative	$270,000	$1,080,000
Contribution margin		$1,620,000
Less: Fixed cost
Fixed manufacturing overhead	$180,000
Fixed selling & admins trative cost	$1,260,000
		$1,440,000
Net Operating Income		$180,000

>Requirement 3

A	Sale price per unit		$300
	Direct materials	$60
	Direct labor	$20
	Variable manufacturing overhead	$10
	Variable selling & admin	$30
B	Total Variable cost per unit		$120
C = A - B	Contribution margin per unit		$180
D	Total Fixed Cost		$1,440,000
E = D/C	Break even point in terms of no. of grills		8,000 = ANSWER