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 10,100

Units sold 8,600

Units in ending inventory 1,500

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 $ 150,000

Fixed selling and administrative 1,210,000

Total fixed costs $ 1,360,000

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

Direct material	80
Direct labor	20
Variable manufacturing overhead	10
Unit product cost	110

2) Contribution margin income statement

Sales (8600*300)		2580000
Less: Variable cost of goods sold (8600*110)		-946000
Manufacturing margin		1634000
Less: Variable selling and administrative (8600*30)		-258000
Contribution margin		1376000
Less: FIxed cost
Fixed manufacturing overhead	150000
Fixed selling and administrative	1210000
Total fixed cost		-1360000
Net operating income		16000

Break even point = 1360000/(300-140) = 8500 Units