Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue g

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:

  

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?

Units in beginning inventory 0 Units produced 9,600 Units sold 8,100 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 $ 160,000 Fixed selling and administrative 1,370,000 Total fixed costs $ 1,530,000

Explanation / Answer

1.

Product cost per unit = Direct materials per unit + Direct labour per unit + Variable manufacturing overhead per unit + Fixed manufacturing overhead per unit

= $60 + $20 + $10 + ($160,000/9,600 units)

= $60 + $20 + $10 + $16.67

= $106.67

2.

Chuck Wagon Grills, Inc.,

Contribution format Income statement

3.

Contribution margin per unit = Selling price per unit - Variable cost per unit

= $300 - $120

= $180

Breakeven point in units = Fixed costs / Contribution margin per unit

= $1,530,000 / $180

= 8,500 units

Sales (8,100 units*$300 per unit) $2,430,000 Less : Variable costs (8,100 units*$120 per unit) $972,000 Contribution margin $1,458,000 Less : Fixed costs $1,530,000 Net operating loss $72,000

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